Air Transport World

Delta dawn. (Delta Air Lines restructures)(includes five related articles)

They are going to do it. They are going to move the goal posts, raise the crossbar and shrink the playing field. And by 1997, leaders of sleepy, laid-back Delta Air Lines will have knocked $2 billion out of the operating budget and achieved a 7.5 cents unit cost, just as they said they would when Leadership 7.5 was unveiled a year ago.

They are going to do it because Skip Barnette had the guts to recommend a $50 cap on travel agency commissions and because senior management had sense enough to back him up.

They are going to do it because Jerry Rousseau made sure that his Airport Customer Service people knew when and where the layoffs would hit. Maybe it didn't mean a whole loi to Delta but it gave the ramp agents a little extra time to look for new jobs.

They are going to do it because of troubleshooters such as Buddy Doll, a self-described "problem solver," who re-engineered $300 million out of the Technical Operations budget but whose voice still breaks a little when he talks about the layoffs there last fall.

They are going to do it because of dedicated Delta rankand-filers such as the sales manager who proposed that his own job be eliminated, and the guys in Bay 9 at Tech Ops, who knew that the process improvements they were developing meant layoffs for most of them. But they did it anyway, because they figured they might not have an alrline to come back to, otherwise.

They are going to do it because, to paraphrase Doll, they don't want to ever have to do it again.

Mostly, they are going to do it because Delta stood by its people for 40 years and now, when it needs them most, Delta's people are standing by their airline. "We are going to do it. There is no doubt we're going to do it," declares new Technical Operations Vice President Ray Valeika. "These people are going to save their company and their jobs."

They have embraced rightsizing, teaming, outsourcing, in-sourcing and all of the other things that must happen when a major corporation embarks on a top-tobottom makeover that will result in $2 billion in annual savings and a 20% reduction in manpower.

There has been a lot of pain over the past 12 months, what with the layoffs and restructuring, and sure, maybe if Chairman and CEO Ron Allen hadn't rushed to buy Pan Am's money-losing European routes at absolutely the worst time in the history of commercial aviation, things wouldn't have gone south so quickly. But Delta's problems in Europe would not have sunk the alrline; not for a long time anyway. The problems primarily were at home and mostly not of Allen's making.

As did virtually all U.S. airlines, Delta began hemorrhaging cash in 1991. Overexpansion, the Gulf War, the disastrous Pan Am acquisition, domestic recession and finally, the emergence of new low-cost competition combined to push the airline into the worst crisis in its history.

Given its high operating costs and strong dependence on the business traveler, Delta was doubly vulnerable to events of the early 1990s. The re-engineering and restructuring of U.S. businesses knocked some 1.5 million middle managers out of the work force--and off airplanes. Meanwhile, low-cost airlines, some of them flying Delta's own hand-me-downs, vacuumed up what was left of the traffic: Discretionary travelers eager to save a buck and the heck with the friendly flight attendants and the gracious service, and all of the other intangibles for which Delta Air Lines is known.

Between fiscal 1991 and 1994, Delta lost more than $1.6 billion. Stockholders' equity dropped from $2.5 billion to $1.5 billion. Longterm debt rose 50%. The airline with the best balance sheet in the industry lost its investment-grade rating. By the time it launched Leadership 7.5 in April, 1994, a lot of analysts were writing Delta off. The airline was too ponderous, too insular, too southern to make the changes necessary to its survival, they thought.

Big mistake. Delta is the sleeping giant that finally awoke, and Leadership 7.5 is the most daring effort to restructure an airline. It's bigger than employee ownership, bigger than airlines within airlines, bigger than quick turns and outsourcing.

Leadership 7.5 is about starting over with a clean sheet of paper. And although the program has been in effect for only 13 months, it's already paying huge dividends. …

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