Delta's New Top Pilot a Surprise

The airline taps ex-Northwest chief Richard Anderson as its new CEO, spurning retiring Gerald Grinstein's picks and fueling merger chatter

by Dean Foust

When US Airways Group (LCC) shocked Delta Air Lines (DAL) with a hostile bid last year—just as the Atlanta-based carrier was working its way out of a wrenching bankruptcy—Delta's creditors were jubilant. With US Airways offering those creditors a hefty 25% premium to where Delta's debt was trading at the time, most would have recouped a big chunk of their losses.

But when Delta's management team, led by Chief Executive Officer Gerald Grinstein, dug in against US Airways' bid and cut many unsecured creditors out of the vote, many of those stakeholders were furious. Now, with Delta out of bankruptcy, and those creditors controlling Delta's reconstituted board, they finally extracted their revenge when the airline named its new CEO Aug. 21. While Grinstein, 75, had publicly lobbied for one of his two top lieutenants to succeed him following his retirement this summer, Delta's new board spurned his wishes, picking former Northwest Airlines (NWA) CEO Richard Anderson, himself a member of the new board, as its new chief executive.

Simmering Resentment

While Anderson arrives with sterling credentials—as Northwest CEO he pared back the airline's cost structure while fending off challenges to its Heartland stronghold—his appointment is nonetheless taken by a number of Delta watchers as a clear sign that the creditors are calling the shots at the nation's third-largest carrier.

Anderson's appointment also raises speculation that, with an outsider at the helm, Delta may reverse its "go it alone" strategy and pursue a merger with either United Airlines (UAUA), Continental Airlines (CAL), or Anderson's former employer, Northwest, with whom Delta held exploratory talks during bankruptcy. What's more, since Northwest left bankruptcy May 31, the carrier has been beset by horrendous relations with its employees, who are angry over deep pay cuts and executive compensation. The airline was forced to cancel dozens of flights in June and July after pilots began calling in sick, hurting profits and boosting the pressure on CEO Doug Steenland.

Delta management "really did give creditors the middle finger when they turned down US Air's bid, and I think there was some residual resentment among the creditors," says Roger King, senior analyst for CreditSights, an institutional research firm based in New York. "Merging Delta with another airline could take out a lot of capacity and make the combined airline much more profitable."