Delta's Mullin Says Carrier's Future By No Means Guaranteed

Delta Air Lines CEO Leo F. Mullin Friday told the company's annual shareowners meeting, "Delta can survive and can remain solvent throughout this incredibly challenging period."

In remarks delivered at the annual meeting in New York City, Mullin said Delta is faced with "a task that would have seemed unimaginable just two years ago, which is to restructure our company, remain solvent, and form the basis for sustained success for the future" in the midst of significant macro-economic and competitive challenges.

Out Of Balance

In recalling the business challenges faced in the past year, Mullin expects many of these to remain constant. This includes the need to significantly realign Delta's cost structure to meet the competitive pressures in the industry, which are driven by low-cost competition and the restructuring of the hub-and-spoke carriers within or outside of bankruptcy. "The unfortunate reality is that we do not yet have an appropriate revenue-to- cost relationship, despite the sacrifice and hard work that have occurred already," said Mullin. He also pointed to the current geo-political environment, a bleak revenue outlook, continuing decreases in demand, and the volatility of the airline industry in general.

Mullin said, going forward, he believes "despite the current difficult circumstances, Delta can emerge from this crisis capable of achieving the long-term sustainable success which will benefit us all."

No Promises

Delta is, he said, "putting the underpinnings for this success in place - but success is anything but assured. Huge challenges must be met if we are to achieve safe passage to, first, sustained solvency and then sustained profitability." Mullin pointed to Delta's profit improvement initiatives, which are intended to transform the company and provide cash savings of $1.5 to 2.0 billion by 2005, as a cornerstone of the company's strategic plan.

"Our commitment to customer service remains strong and is being further revitalized," Mullin said. The recent approval of Delta's codeshare alliance with Northwest Airlines and Continental Airlines is just one of many initiatives designed to provide customers with a full range of benefits. Mullin noted that Delta will "continue to invest in improving the customer experience, despite current financial difficulties."

Mullin stressed that Delta not only survived its most difficult year to date, but also posted a considerable number of achievements. While workforce reductions became an unfortunate necessity, Delta was able to minimize the number of involuntary employee furloughs in part due to its relatively strong financial position. Mullin pointed to the company's strong balance sheet and success in reaching its 2002 liquidity and cash burn targets. He noted Delta's performance was consistently referred to as the best of the network carriers by independent measures, including some Wall Street analysts.

In the last year, Delta also:

• Launched a new low-cost operation, Song
• Gained antitrust immunity with transatlantic and transpacific SkyTeam alliance members
• Added $2 billion to its annual revenue base by expanding its use of regional jets
• Took steps to strengthen its presence in the Southeast and Northeast with the start of construction projects for a fifth runway in Atlanta and a new terminal in Boston.

Does This Sound Familiar?

In his speech, however, Mullin made no mention of his 2002 salary ($795,000, up from $597,000 in 2001), or of his performance bonus for last year ($1.4 million in 2002 - he didn't get one in 2001) or of his stock bonus ($2.03 million in restricted shares) or of the protected trust fund set up for him and 32 other senior executives by Delta ($25.5 million). He has, however, pledged to take a cut in pay and not to accept a bonus this year.

Delta's pilots are the best-paid in the industry. While the company is asking pilots for wage and benefit concessions, a lot of them say there's no way they'll give anything up while executives retain their huge salaries and golden parachutes.

FMI: www.delta.com