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Delta's business connection to Boston

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I wondered why Delta was spending so much money at Boston, Logan. It's intrestig that both the outgoing and incoming Chairman are both from the Boston Metro area.

In surprise move, Delta CEO to retire

Successful tenure was clouded by labor strife

By Keith Reed, Globe Staff, 11/25/2003

Leo F. Mullin, chairman and chief executive of Delta Air Lines, said yesterday that he is leaving the company after steering the nation's third-largest airline through the tumultous times following the terrorist attacks of Sept. 11, 2001.

Mullin successfully avoided the bankruptcy filings that hobbled competitors following the attacks through aggressive cost-cutting, but his tenure has been clouded by strained labor relations and controversy over his compensation.

Mullin, 60, will officially leave his post on Jan. 1. A Maynard native and Harvard MBA, he played a key role in Delta moving forward with its $400 million renovation of Logan International Airport's Terminal A, a massive and risky investment that survived heavy cost-cutting initiatives after Sept. 11 attacks decimated the airline industry.

His unexpected departure comes as the terminal is half-built, and as several other Delta cost-cutting initiatives are still being implemented. Mullin had been the leader of contentious negotiations with Delta's 7,500 unionized pilots over wage concessions the airline hopes to win, and some observers of the company said his retirement appears to clear the way for a more effective labor negotiator to take the helm.

"I buy the fact that he really felt that somebody else could get things accomplished quicker than he could, and so he stepped aside," said Ray Neidl, airline industry analyst at Blaylock & Partners in New York.

"Leo's done a good job running the company since he's been there but you had a guy sitting on the bench there that is an expert in dealing with unions and getting them to accept cuts."

Mullin's replacement is Gerald Grinstein, 71, the former chief executive of defunct Western Airlines, where he developed a reputation for quelling labor disputes amicably after winning concessions from employees there in 1984. Western merged with Delta in 1985, and Grinstein has sat on Delta's board since.

Mullin not only helped Delta avoid a bankruptcy protection filing following Sept. 11, but emerged as a leader for the airlines, helping to win the industry $15 billion in federal aid. But he accepted a voluntary 15 percent paycut and publicly apologized to shareholders in April for some of the airline's compensation policies. Mullin made $2.2 million in salary and bonus pay last year, according to Delta's public filings.

Mullin's predecessor had been given a lucrative severance package in 1997, after which shareholders -- led by Delta pilots -- fought four years to pass a resolution requiring shareholder approval for payments to departing executives that totaled more than 2.99 times their annual salary and bonus. Mullin's severance package is worth $16 million, according to a statement from Delta.

He dramatically cut many of the airline's costs by winning labor concessions from flight attendants and other workers, but had a tough and ultimately unsuccessful time trying to persuade the company's pilots to take cuts.

Karen Miller, a spokeswoman for Delta's pilots union, said both sides are scheduled for a negotiating session today to discuss the union's latest counterproposal. Neither side would disclose details of the negotiations.

In an interview yesterday, Mullin and John F. Smith Jr., a Delta board member who will take over as chairman next April, both denied Mullin's retirement is related to the talks with Delta's pilots.

"After 6 1/2 years, I've just decided that it's time for me to do something different in the future," Mullin said. "I certainly don't regard it as falling on the sword at all. We have a program that is moving along very well to rectify the cost structure of the organization. I think that I would just say on this that there's never any perfect time."

Still, the outgoing CEO acknowledged that he was leaving with many projects started on his watch unfinished. This year, Delta scrapped its unpopular Delta Express regional service in favor of Song, a new low-fare carrier formed to compete with the likes of JetBlue and Southwest. Song flies to 13 cities, including Boston, and has been in operation less than a year.

And then there's the Terminal A project at Logan. The new terminal is slated to open in April 2005, after which Delta, Logan's second-largest carrier based on passenger volume, is slated to move all of its departures and arrivals into the facility. The project is important to Logan because it positions Delta to expand its capacity there, particularly for trans-Atlantic flights.

Mullin said his retirement shouldn't affect Delta's Logan expansion plans. The company's investment at the airport is too great to pull back now, he said. And Logan is not losing a local Delta connection: Smith, the new chairman, is a native of Worcester and has a home on Cape Cod.

"This particular terminal is going to be one of the key reasons why we feel strongly that we'll win the competitive battle there," he said.

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I doubt that was the main reason for Delta's investing in BOS. There's something to say about the fact that BOS is the only airport that is not a hub for someone, so the loyalties of its flyers are up for grabs. Although BOS is a focus city for DL and AA, it has also many US flyers due to the shuttle. The market tends to be more business oriented thus higher yield, there's also a large leisure aspect during the summer. Also, there was very limited low-fare competition (that will change with the arrival of AirTran). That's the reason, so many airlines jockeying for position at BOS.

Just look at recent developments, new flights to the caribbean from US. New point to point to secondary cities such as New Orleans for AA as well as Caribbean flights. DL is waiting for Terminal A to be done in order to begin European service, I think. They had announced BOS-FCO, but that was cancelled due to the war.

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