This is to all who asked for my notes taken from 2 meetings in DFW on March 17, 2004. First meeting was with the Delta pilots and their spouses. The second was a public contact meeting.
The introduction to both meetings was the same. The following are my notes on what Mr. Grinstein said. These will not be exact quotes nor statements in their entirety. I am simply writing from the notes I took. So here is what he said:
There will always be a fundamental shift in the airline industry with highs and lows. However, the very high cycle will never come back. U\There used to be upswings and downswings. An example of one of the downswings was during pilot negotiations for contract '96; an upswing one was during C2K. Low Cost Carriers (LCC) have a 25% share of the market at present. I predict it will be 40% in the next 5 years. We must become cost competitive now. The urgency is there. We may not have to drop down to the LCC level, but we must cut drastically.
Delta has gone from having the best balance sheet in the industry down -103%. At this point he reads the article from March 17 Wall Street Journal about Standard & Poors downgrading Delta 2 points. Delta cannot borrow anymore money, and I wouldn't borrow anymore anyway. Many of our suppliers have put Delta on a cash only basis. Fuel costs have doubled.
Delta is making pension payments for 2003. That will bring funds up to what is required under ERISA. The non-pilot fund will be funded up to 80% and the pilot fund will be at the 83% level.
You've heard that I am obsessed with the pilot costs and it is true. Pilot wages are way out of line comparative to other pilots in the industry. They are
59% higher than American
89% higher than United
190% higher than Jet Blue
270% higher than Air Tran
My goal is to negotiate with ALPA to get costs down so that Delta can get out of debt.
A reassessment of the entire airline is happening now and expected to be complete by the end of July. The results will show why we fly where we fly, why we use particular equipment, why we fly when we fly. We need to get ahead. We need to stop responding to the market and to be the initiator. Our level of passenger service must improve if we are to thrive. There must be mutual trust and mutual sacrifice. On my watch extra bonuses and options won't happen. What came before is a fact of life: IT HAPPENED. By the way, I don't have a contract and I don't want one. I plan to be at Delta 3-4 years unless I am run out by you guys.
The floor was then opened for questions.
Pilot Questions:
Q. LAX pilot questioned the inefficiency of trips, citing multiple trips with DH time, long layovers, and very little hard time. He asked if this was the way to make money.
A. Those are the kinds of things being looked at. If you take the pilot cost out of the equation, Delta is the lowest cost of all carriers.
Q. Pilots don't want costs shoved down their throat. We are willing to give some. Why not take that now and come back to take more later if necessary? If we do not give what you want will you play the bankruptcy card?
A. Playing the "B" card IS shoving it down your throats and that is not my intention. "Do it my way or no way" is not my goal.
Q. Why don't you take the pilot offer that is on the table?
A. That is just not feasible. Using the offer on the table will not get the balance sheet down. It might by us 5 to 6 months, but that is all. Look at US Air to see how that does not work, they've had to come back to the table 3 times now and they are still in trouble.
Q. What is the bottom line you want from the pilots? We read in the media it is 30%. ALPA tells us it's close to 50% what is the number when it includes block hours as well as work rules and benefits?
A. The number is probably closer to 40%. What was your slogan for C2K? Several from the audience filled in with "United + 1." Right now I'd be willing to give you UA +1! (laughter from the pilot group). The market does not allow us to barter. It must be done all at one time with no snap backs. To make a dent in Air Tran will cost us hundreds of millions of dollars, but the payoff would be worth it.
Q. When do you see Bankruptcy happening?
A. We are not in the zone of insolvency yet. "B" is the last thing I want to happen. Chapter 11 changes the life of a company. It cuts its heart out. You lose control and history shows very few airlines ever get control back.
Q. I flew with SLC f/a's who told me about their mandatory meetings called "The View." In it they were told that the pilots are the reason that Delta Air Lines is in distress. The pilots must accept the cuts or Delta will not survive. Why are you pitting one employee group against the other?
A. I have never heard of The View. It is certainly not my intention to pit group against group anymore than I care to negotiate via The Press. I will investigate what is being said a these meetings.
Q. Why are we spending money on terminal expansion at JFK, designer uniforms, and aircraft interiors when we need to cut costs. These things do not put money in Delta coffers.
A. We had an agreement with the NY Port Authority to renovate JFK. We were threatened with a law suit if we did not fulfill that obligation. A law suit is the last thing we need at this time.
As to the uniforms. We must improve customer service. The flight attendants hate their uniforms. Flight attendants feel frumpy. We must send them to work in something decent so that they can feel good about themselves. I feel the level of service will increase with better environment and better tools. I don't know who made the decisions on the present uniform, but they did a lousy job. The uniforms are ugly, poorly made and of very poor quality. The cost of a designer is very small when compared to the value of good customer service.
Q. Why are the indications present that upper management is jumping ship? One point nine million options have recently been exercised at 2 1/2 times their cost. This cost Delta 30 million dollars.
A. Leo and his gang clearly misjudged the crisis and they haven't been able to keep the team together. The present board couldn't stop the exercising of options. Those rules were already in place. I have not exercised any of my options.
Q. What is the future for RJ?s? Will Delta continue to order more?
A. I feel that there is a definite market for the RJ. However, shuttling it from JFK to DFW or from SNA to DFW is not appropriate. They are good for short hauls only. (Applause.) My view of where this industry will be 5 years down the road is: Out of the 6 network carriers, only 2 will remain. The ones that are left will serve the Pacific as well as the Atlantic, & the Caribbean from the US. Within the US, they will only serve the major hubs. I predict American will be one of those 2 airlines and I hope that Delta is the other one.
Q. Another statement about The View being management's way of bad mouthing the pilots and their contract.
A. As I stated before, I am not aware of these meetings but will investigate.
Statement from pilot: I speak for many in this room when I say that I will not give up 40% of my livelihood until Bankruptcy sheds a huge portion of Delta's debt.
Reply: Bankruptcy will only hurt this company and you. It will not help anyone. Hopefully, you won't have to find out what you'll be making in salary when a bankruptcy judge assesses your salary instead of ALPA negotiating it for you. I want you to consider the consequences of "B." For example, UA pilots gave 450 million in concessions and they are doing okay. US Airways pilots did not give enough up front and the pilots are again being asked for more. A bankruptcy judge would pick your company apart. When you are considering what you will have to give up, remember the sacrifices the other groups at Delta have made. They've switched to a cash balance retirement, health insurance costs more, & they are doing more work with less people. I do not plan to ask for more from those groups. The pilots must give concessions and management must reduce as well.
Q: What do you see for the future of Song?
A. I will wait and see. I was never in favor of a LCC within our own airline. Song has not operated a full quarter yet with the 36 aircraft complement. Until I see what happens, I am not prepared to take another 17 aircraft from mainline as previously proposed. We must pause and see if it will be profitable for the company. If it holds Jet Blue at bay, then it will be a valuable asset.
There was no vote by The Board on whether to begin Song or not. The money is already spent. We need to step back now and see how much it costs, and how much it hurts Air Tran and Jet Blue.
Q. Is Song adding to Delta's earnings?
A. Right now it is not moving the needle for earnings. If it hods the LCC's at bay then I would say it is worth the expenditures.
Q. Delta has spent a lot of money doing one thing and then changing its mind; for example: service to the Pacific, the PDX base, the purchase of the 767G. When will this 2 steps forward, one step back stop?
A. Our company will always make mistakes. We are always testing the market. If you want my opinion, Song and Delta Express were mistakes.
Q. How do you plan to get the trust of the employees back?
A. By having these Town Hall meetings. I have not personally met the presidents of the airlines who are members of our Sky Team. I should be making those rounds and paying a call on the presidents. However, I think it is more important to first meet with the employees. I must listen to those of you out there on the front lines. I want you to take a look at my previous work record and talk to others I've worked with. Judge me from these things now, and look to the future. There is no quick cure for the trust factor. Ron and Leo made trust questionable.
Q. What do you plan to do about the many paint schemes on our aircraft?
A. "I can't stand that God damn tail!" We've already spent the money so I'm not going to go back and spend more money to change it.
Q. What do you intend to do about our marketing strategy?
A. I hate our ads using that little bag tag. I want our ads to change, to go forward, to be something we can be proud of.
Q. We have many employees who are talented and could probably write ad campaigns from within as well as expose waste within the company. Why not establish an employee hot line for this purpose?
A. Good idea.
Statement. I have no confidence in Delta's marketing strategy as to where we fly and the frequency with which we fly.
Reply. Adjustments are being made. As I stated earlier, the entire airline operation is under review. I don't want to throw stones at marketing. Fred is leaving and he sees things differently from me. I will be looking at flight allocation and strategy. How we sell ourselves to the public is of great concern to me.
Q. What do you see for the future of US Airways and United?
A. I predict US Air will continue to erode until it is no more. The airline is in its third round of asking for concessions and everything is focused on that. UA will probably receive government help and come out of Chapter 11 by August. I am not sure, though, how long they will endure. The Pacific market is a very lucrative one for them as well as for Northwest Airlines. I suspect someone will buy United. Northwest must get their costs below American. AA will probably have to go back and ask for more concessions as this quarter did not turn out well for them. Neither United nor American cannot buy the other. I think AA will be one of the survivors.
Q. With the projected pilot pay cuts what is the projected growth of Delta?
A. I can't answer that. I think we need to streamline flights. The larger aircraft such as the 777 is where we need to go. Our aim should be to become a long haul carrier. I am not ruling out the short haul market, there is a place for it. I don't like the difference classes of service within the same airline, such as one class of service on some aircraft, two classes on another aircraft.
Meeting with Public Contact Personnel
Introduction speech was almost identical. Mr. G. emphasized the fact that he needs to hear from the front line. He pointed out that at previous meetings he had already learned two important things. One was that our premium customers originating on Delta were not being treated well by our Sky Team Members. The second thing: that there were mandatory flight attendant meetings called The View, that he knew nothing about.
Q. When will the pilots give concessions? Are you making any progress?
A. I hope so. I must find out what they take away from these meetings. "If ten people tell you that you are drunk, lie down," then you have got to figure that their statement is true. I am trying to be those ten people. It must be soon as there is a great urgency to get costs down.
Q. Would you support bringing in a group to fly at half the pay?
A. No, I will not try that tactic with the pilots.
Q. Will sick leave and OJI be restored when we return to profitability?
A. Probably not, "The horse is already out of the barn."
Q. Our call center in India is hurting Delta. We get complaint after complaint about this. Our customers do not like the outsourcing of jobs to India and do not like the treatment they receive.
A. The money has been spent on this endeavor and it is reducing our costs and not taking jobs away from anyone. I do not want customer service to deteriorate. I will continue to watch this.
Q. If you do not get concessions from the pilots will we have to file for Bankruptcy?
A. I am trying like hell to avoid that, that's why I am making these trips. Bankruptcy is the worst thing that could happen to a company. Can you imagine? One pilot stood up in the last meeting and said he would not take pay cuts until Delta declared bankruptcy, thereby reducing the amount of its debt.
Q. How do you plan to increase revenue?
A. There are many ideas in the works. We could fly cargo only aircraft. We could handle other airlines. I am looking at COSTCO and how they sell all kinds of services under one roof such as insurance, spas, etc. Delta could possibly sell other services at a break even rate such as selling tickets to the theater or sporting events.
Q. If the pilots had agreed to the concessions two quarters ago would we be making money now?
A. Can't answer that specifically, but we would be in a whole better place. Their contract is still valid until August 2005 and they are due to take a raise in May. During those negotiations in 2000, their mantra was "United Airlines + $1." United pilot pay plus one dollar would be an 80% reduction in their today's wages!
Q. Will we increase our international code share flights with CO and NW?
A. I don't know yet. If it will make us more money, then yes. I would like to see Delta lose the role of the reactor and become the acquirer or doer.
Q. Will you bring back The Red Coats?
A. I haven't given it a lot of thought.
Q. Will more executives be leaving?
A. Yes, I expect that to happen. My family thinks I'm wonderful, but not everyone likes the way I do business. I know that some at Delta have proven they were untrustworthy, but that is in the past. Other companies have had their share of people who are unreliable. Look at Warren Jensen, the author of "Simply Good Business." He turned out to be someone untrustworthy.
Q. Delta's "Bereavement Fare" is sky high. Currently we charge 50% off the full coach fare. This is a terrible burden to those in need.
A. Sounds like that needs looking into.
And it is here that I departed. It was 1630 and I had been listening to Mr. G. since 1300.
Hope this is of some insight and is helpful to those of you who do not have the chance to hear Mr. Grinstein speak. I have tried to be factual and not interject any personal opinions in this piece.