Grinstein Likely To Depart After Bankruptcy Exit

After Delta CFO Ed Bastian dropped the first shoe on the employees at midweek, CEO Gerald Grinstein dropped the second one on Friday.

Speaking to the Associated Press in Paris, Grinstein said that Delta was in discussions with the Pension Benefit Guaranty Corporation about terminating the pilots' pension plan. "It'll be probably fairly soon," he said. "We've got a judicial schedule to conform to, but it'll be fairly soon."

He did say that the company was keeping the Air Line Pilots Association informed of its ongoing negotiations with PBGC. As we reported last week, the loan guaranty company argued before US Bankruptcy Court judge Adlai Hardin that it (PBGC)  should get a $650 million note and $2.1 billion unsecured claim should the pilots' pension be terminated -- funds Delta promised to the pilots. Hardin rejected the PBGC claim and let the Delta deal with the pilots' union stand.

One reason that the parties are negotiating, rather than going to war, is that Delta is so far in debt that the unsecured claim would be nearly worthless if the line went into Chapter 7 liquidation at this time. The pilots would just be some of many unsecured creditors waiting in line behind secured creditors, and might get a few pennies on the claim dollar.

Grinstein has to steer a treacherous course between killing the company outright, and killing a Chapter 11 process which is the sole chance to save the business. The desperate straits the company finds itself in have helped bring unhappy pilots and other workers to the negotiating table; a small percentage of something is better than 100% of nothing, and liquidation leaves everybody unemployed.

In United Airlines' bankruptcy case, the company placated the PBGC with a substantial payout in notes and stock in the new, post-bankruptcy UAL. The same approach is very likely in the Delta case; there is little to negotiate with except hope for a better future.

Grinstein's Friday comments were the first time anyone at Delta confirmed the widely-expected pension termination. In previous interviews, Delta officers have been unwilling to say more than that Delta might seek termination.

Grinstein (below, right) did say that he was done wringing concessions out of the pilots or other workers, at least for now. "I don't expect to go back to the pilots. We have all our people at the market rate." He offered some hope that the company could be more efficient "in the way we operate the airline, but also in ... revenue management, handling the network and utilization of our equipment."

In 2004 Delta pilots gave the company $1 billion in annual concessions through 2009. This week's deal was another $280 billion hit, which amounts to a 14% immediate pay cut. The pilots also promised not to fight Delta's termination of the pension plan. A rearguard action on the pensions would not succeed, judging by the United precedent, but would drag out reorganization and cost Delta money and time, both of which it needs to survive.

The airline is in a painful place: it can't make it without stiff concessions from employees, but it's a customer-service business where grumpy employees drive customers away.

Grinstein also gave a hint at his own future: He'll stick with the line "until at least we know we're coming out" of Chapter 11. And while he spoke of the difficulty of Chapter 11 and his unsuccessful 2005 fight to keep the company clear, he also had some good news: "In the light of fuel at the levels that it's at, the company was still profitable in April."

"I think that we've made remarkable progress," he said.

Grinstein's tenure as CEO has been a toboggan-ride through Niffelheim, at an age when most men are enjoying retirement (he's 73; Yale '54 Harvard Law '57). He joined a company that was already in desperate straits, and steered it into Chapter 11 as three-quarters of its stock value evaporated and employees faced layoffs and swinging pay cuts. The company suffered from fuel costs, a crushing debt load (Delta owed more money than some entire nations), and poor lease terms on aircraft (some of which may have benefited previous managers at the expense of stockholders).

Grinstein's compensation is less than a half-million dollars, less than many airline CEOs' and a quarter of the transportation industry's median, and he owns no large blocks of Delta stock. He, Bastian, and some other executives are believed to have special "bankruptcy-proof" pensions.

If the company does turn around, it will be Grinstein who is remembered as its savior, although it's not clear yet how he'll profit from it. If it does not turn around, Grinstein will get the blame, like an emergency room physician sued for not saving the patient who was dragged in after being shot, stabbed, and run over by the subway train.

FMI: www.delta.com