May 21, 1997

Edited by Douglas Harbrecht


When a strong earnings report on Apr. 24 vaulted the stock of Delta Airlines over $100, it helped spell the end of the line for Chief Executive Ronald Allen, Delta board member Andrew Young says.

The first Delta board member to talk publicly about Allen's abrupt resignation, Young told Business Week Online that Allen was asking for a 10-year employment agreement laden with stock incentives at the time Delta's stock reached a spike. "Even his friends on the board would have had a hard time giving him a 10-year contract with those terms," says Young. "On the day they began looking at the contract, the stock went over $100, and the risk was too big."

Asked if Delta's top job has been offered to American Airlines executive Donald Carty or to any airline executive, Young declined to comment directly. "I think the board will want someone within the airline industry, but I don't think that's absolutely necessary," he says.

Allen announced his departure on May 12. The resignation came as a shock to airline employees and investors after Delta had posted operating earnings of $398 million, up 136% from the year-earlier quarter. The report marked an eighth consecutive record quarter. After losing more than $2 billion on international operations that Allen bought from Pan Am in the early 1990s, Delta launched an aggressive cost-cutting program and endured whithering negotiations with pilots last fall. Now it has emerged as one of the nation's strongest airlines

Young, the former U.N. Ambassador and Atlanta mayor, downplayed talk that former Western Airlines Chairman Gerald Grinstein ousted Allen in a dispute over Allen's desire to dump Delta Chief Financial Officer Thomas J. Roeck Jr. "There's never been an acrimonious moment in the Delta board room," says Young. Allen may have had one or two detractors on the board, but "Grinstein was not one of them."

The decision to step down ultimately was Allen's, Young says. The 55-year-old Delta chief exec had gambled on the long-term deal and was not willing to back down. "He could either build a new life at 55 with a significant financial benefit, or hassle for another two years or five years, and end up with nothing," says Young. "The wisest course was to leave."

The relatively peaceful parting is underscored, according to Young, by the board's decision to encourage Allen to proceed with plans to travel to Asia this week in an effort to forge business alliances with All Nippon and China Southern airlines.

Allen will not leave office until July 31, and Young expects him to use his remaining time in the job to keep Delta out of the arms of suitor Continental Air Lines -- a stance Young says is supported strongly by board members. "He doesn't want to see Delta embroiled in a thing with Continental," Young adds.

By David Greising in Atlanta

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