Why Doug Parker wants to fly Delta

By Christopher Palmeri, Dean Foust and Lorraine Woellert

updated 4:57 p.m. ET Nov. 16, 2006

Doug Parker is nothing if not practical. The now-44-year-old airline executive assumed the top spot at struggling America West Airlines in 2001, just before September 11. During the difficult weeks that followed, Parker jumped on a government offer to provide low-cost financing to keep his airline aloft and began charging passengers for meals, a first in the industry. By last year, Parker's company was not just a survivor — it was an acquirer, snapping up much-larger US Airways Group in bankruptcy court.

Now, Parker hopes to repeat that trick with a hostile, $8 billion offer for bankrupt Delta Air Lines. As Parker told investors after announcing his offer on Nov. 15, the airline industry remains highly fragmented. No airline has more than a 20% share and his, the sixth largest, is about half the size of rival AMR, parent of American Airlines.

By merging with Delta, Parker hopes to create not just the industry's largest carrier, but one that would generate $1.65 billion a year in additional profits, mostly by renegotiating aircraft, gate, and other leases, much as he did with US Airways. "We know the kind of value that can be generated by a merger," he said.

Timing is everything
There's an urgency to Parker's moves. He first approached Delta Chief Executive Officer Gerald Grinstein in the spring to propose a deal. Grinstein rebuffed the offer. Parker says that half of his proposed savings can be achieved only while Delta is in bankruptcy court, which gives debtors the opportunity to void contracts. If Delta goes forward with its own plan to emerge from bankruptcy by the first half of next year, those cost-cutting opportunities will be lost, Parker says.

Parker is emerging as a new kind of leader in the troubled industry. A veteran of American Airlines and Northwest Airlines before joining America West as chief financial officer in 1995, he's a tough-as-nails negotiator, but his management style is surprisingly laid-back and labor-friendly. He's allowed employees to vote on what uniforms to wear and soft drinks to serve. In March he agreed to forgo his $770,000 bonus for 2005 out of sympathy for US Airways employees, most of whom took pay cuts as result of the company's bankruptcy filing.

To make his case for Delta, Parker compared his company's performance since its merger last year to that of United Airlines parent UAL, which came out of bankruptcy earlier this year. US Airways stock has climbed 164% since the company emerged from Chapter 11 in September, 2005. United's shares are up just 2% since it emerged in February. "As much we like to say it's brilliant management, the big difference is we were able to generate synergies that United was not able to," Parker said.

Fending off predators

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That's Parker's side of the story. Grinstein tells BusinessWeek.com that Delta's creditors—who'll become shareholders when the company's own reorganization plan gets implemented—stand to make much more money by staying with him. Grinstein says anyone trying to buy Delta now is getting it on the cheap and that the world will be pleasantly surprised at how profitable the company will be in the coming years.

After the Delta bid was made public on Nov. 15, Grinstein sent an e-mail to all employees. "Our goal is for Delta to exit bankruptcy in the first half of 2007 as an independent, stand-alone company—not as a merged, acquired, or otherwise consolidated airline," he wrote. "We are working hard to regain an industry position of strength and leadership. From that position, we can best control our own destiny and pursue the direction that best benefits all Delta constituents, including Delta people, now and in the future."

Later in the e-mail, he added, "The Bankruptcy Court has granted Delta management the exclusive right until Feb. 15, 2007, to create our own plan of reorganization. During this 'exclusivity' period other parties are not allowed to submit competing plans. I've said before and continue to believe that the history of mergers in the airline industry is almost always one of failure, with over-promise of synergies and under-delivery of results. That continues to be my view."

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