ATLANTA One year into Richard Anderson's tenure at the helm of Delta Air Lines, the company is on the brink of becoming the world's largest carrier through its purchase of Northwest Airlines. But some of the biggest challenges may be yet to come.
Delta and other carriers are flying through a turbulent period in the airline business, including high fuel costs and a weak economy. And Delta still has a number of hurdles to overcome to complete its merger.
Fortunately for Anderson, he isn't entirely new to airline mergers.
As a junior attorney in his first airline-industry job, Anderson was at Continental Airlines when executives pulled off a merger combining Continental with People Express, Frontier Airlines and New York Air in 1987.
"At Continental, I saw it firsthand," Anderson said.
Now, just more that 20 years later, he's overseeing a merger of his own.
Even before he officially stepped into the chief executive position at Delta on Sept. 1, 2007, speculation was rampant that he would move to acquire Northwest, based in Eagan, Minn., where he was chief executive three years earlier. In April, the two carriers announced their deal.
Shareholders are scheduled to finish voting on the deal at shareholder meetings Sept. 25. For the U.S. Justice Department review of the merger, Anderson said Delta has submitted about 10 million pages of documentation and expects a ruling by the end of the year.
Once the two carriers combine, Anderson said, the Atlanta headquarters will be larger, though the company will retain executive offices, reservation centers, a data center and flight-training facility in Minnesota, and some employees from Atlanta may move there. Anderson, a native of Galveston, Texas, comes off as friendly and has a down-home tone, and he often talks about the importance of retaining Delta's culture in the merger. The airline's familylike environment has evolved over decades.
But Anderson's policies and descriptions from some who work closely with him paint a picture of a leader with a different style one who closely oversees operations, takes more of a no-nonsense approach and isn't afraid to make unpopular decisions.
When Anderson summarizes accomplishments during his first year at Delta, he mentions the announcement of the merger and then ticks off a laundry list of statistics and details on everything from customer service rankings to unit revenues. He has some regrets, saying he wishes Delta had hedged more of its fuel cost and reacted more quickly to adjust to high fuel prices and a weak economy.
"Richard is incredibly hands-on, very operational, and that is a change," compared with previous Delta chief executives, said Delta President and Chief Financial Officer Ed Bastian.
In a document called "Rules of the Road," one of the first papers Anderson distributed at Delta after he arrived, Anderson writes: "We run a meritocracy. ... No 'new jobs' for nonperformers."
He also instructs: "Always be collegial, even in tough conversations."
One of those tough conversations came when Delta moved to terminate Delta Connection contracts, including with Mesa Air Group's Freedom Airlines. Mesa sued Delta, and a judge ruled the airline must resume the flights pending a trial.
Anderson will also face scrutiny from others watching to see how the airline lives up to its promise to not cut any frontline workers as a result of the merger or eliminate any of the combined carrier hubs. Delta is already shrinking its hub in Cincinnati by 22 percent this fall, compared with a year earlier, among other cuts.
"I think the jury's still out on what kind of leader he'll be for Delta," said Cathy Cone, head of a group of retired Delta employees. "It's going to be a real challenge to merge the two companies."
Integrating two airlines whose operations sprawl across the world is a monumental task, involving the combination of everything from fleets to flight schedules, work forces and information-technology systems.
"We want to get the merger done and get it successfully integrated," Anderson said. But that's not his only major challenge. "The issue that we face perennially in this business is this unbelievable cyclicality," Anderson said.
Historically, the health of the airline industry tends to mirror the economy: When the economy is weak, the airline industry suffers, and when the economy is strong the industry benefits.
In the second quarter of this year, Delta lost $1 billion, after recording $1.2 billion in special charges for write-downs, severance and closing some facilities at airports. Excluding the special items, Delta reported a $137 million profit. A year earlier, Delta had a $274 million profit, excluding special items.
Anderson said Delta must grow revenues 8 to 12 percent a year while improving cost efficiency by 5 percent a year even when it's cutting back flight capacity. Delta can accomplish that, he said, through the Northwest acquisition and through growth of other businesses such as cargo and maintenance.
He hopes Delta will be consistently profitable by 2010.