7/16/08

CEO plays hardball with union-dues

When Delta boss has leverage, he uses it

Shortly after assuming the top job at Delta Air Lines last year, Richard Anderson gave each of the carrier's executives an eight-page, spiral-bound book that would serve as a blueprint for returning the airline to its former glory.

"Rules of the Road" sets ambitious targets for financial performance and customer service, but primarily defines management principles that Anderson believes are crucial to survival in an industry that has seen four big airlines, including Delta, go bankrupt in the previous six years.

Anderson put one of those credos - "Speed wins" - to work just months into his CEO job, when he startled the industry by saying Delta was open to a merger. Six months later he had a deal to acquire his former employer, Northwest Airlines.

Federal regulators are expected to approve the merger later this year. If they do, Anderson, 53, could face his toughest challenge -- proving that combining two money-losing airlines can usher in a new era of stability for passengers, employees and investors.

Since the merger was negotiated, oil has soared to over $140 a barrel. Airlines are cutting flights, raising fares, charging new fees and jettisoning workers. Northwest announced 2,500 job cuts on Wednesday.

Anderson contends a larger Delta would prosper over the long haul. But to pull it off he will have to succeed where many airline executives have failed, combining two sprawling companies with dramatically different cultures.

Anderson's career has been marked by responses to one crisis after another.

The Sept. 11 terrorist attacks came just seven months after Anderson was named Northwest's CEO in 2001. He also had to deal with a recession, the Iraq war and the spread of a viral respiratory illness in Asia, forcing Anderson to lay off workers and slash costs.

In late 2004, about a year before Northwest filed for bankruptcy, Anderson bolted for an executive post at UnitedHealth Group. Anderson explained the leap as an opportunity to one day run a much bigger company. But even there, crisis loomed as the company and its longtime CEO, Dr. William McGuire, became engulfed in a stock options backdating scandal.

Anderson, who was personally untouched by the options problem, was involved in developing the legal strategy that helped clean up the options mess.

"Richard is a great doer," said former Southwest Airlines CEO Herb Kelleher, who worked with Anderson after the Sept. 11 attacks on creating a federal security system for air travel. "His blood circulates faster than many people's," Kelleher said.

That's been true from a young age. Anderson was just a 19-year-old college student when his father, an office worker for the Santa Fe Railroad, died of cancer. His mother's death, also from cancer, followed just nine months later. Anderson, the middle child in a family with four sisters, stepped forward to become the guardian of the two younger girls.

He said it's hard to know precisely how his parents' early deaths shaped the person he has become. "It surely required you to get serious pretty quickly and get on with getting your degree, getting into law school and start working. That's what I did."

Anderson worked as a construction laborer and as a plumber's helper to put himself through college. He earned his law degree at night.

In Houston, where he was a prosecuting attorney, he was a neighbor of Ben Hirst, who was in charge of Continental's legal department.

The pair would discuss current events and books they were reading over beers in lawn chairs in their yards. In 1987, Hirst hired Anderson to join Continental.

"Clearly, he had a lot of intellectual curiosity, which is an absolute necessity in the airline business," said Hirst, now Northwest's general counsel. "Secondly, he was an extremely skillful trial lawyer who had the ability to drill down and get to the bottom of things, which is equally a necessity in this industry."

On the front lines

Anderson isn't one for long, flashy PowerPoint presentations, according to his "Rules of the Road," which he keeps near his wooden desk that was used by Delta founder C.E. Woolman. Nor is he into political gamesmanship. "Put all the cards on the table." (Rule No. 4F) And several rules are devoted to team-building.

Anderson, who regularly works 80-hour weeks, devotes one-fourth of his daytime hours to meet with Delta employees.

"In an ideal world, you'd like to be on the front lines all the time," he said.

Anderson is known for making impromptu visits at airports, walking around maintenance hangars without an escort and riding in the jumpseats of Delta's cockpits.

"By talking to two pilots, you can learn what's going on and you can get the message out about what we're doing," he said.

On a recent summer day, the maroon leather chairs in the Delta board room are filled with 20 rank-and-file employees who are encouraged to ask questions and give Anderson unfiltered feedback on how to make the airline run more smoothly.

"The industry is clearly going through a shakeout," Anderson tells workers. "We're really going to manage our costs closely, but not foolishly." Delta will reduce the regional jets in its schedule, phase out low fares to leisure destinations that don't cover costs and invest in international service that will allow Delta to survive for years to come.

In a later session with pilots, Anderson adds, "We will not be vulnerable to anybody," because the airline is preserving the flights that are "strategically important to Delta."

Blending workforces

During his tenure as Northwest CEO, Anderson sought concessions from Northwest's seven unions, but union leaders said he dealt with them in an open and honest fashion. Dave Stevens, chairman of Northwest's pilots union, said, "Richard Anderson is pragmatic and understands the need for leadership, not just management."

Still, Northwest union leaders are wary of how their members will fare in a merger with the much larger Delta workforce, in which only pilots and dispatchers belong to unions.

Leaders of the Association of Flight Attendants (AFA) and International Association of Machinists and Aerospace Workers (IAM) portrayed Anderson and other Delta executives as enemies of labor during recent congressional merger hearings.

AFA President Patricia Friend castigated Anderson for making a video -- distributed to Delta flight attendants -- that she said included "falsehoods" about his dealings with Northwest attendants and made it sound like "bad things" would happen to Delta attendants if they joined a union. In May, Delta attendants rejected union representation. Despite high oil prices, Delta approved a 3 percent pay raise for its nonunion employees that took effect July 1.

Sitting in his Atlanta office, just yards from Delta's heritage museum, Anderson said, "We work hard every day to make this a good place to work. And you don't need a union to do that and the company has demonstrated that time and again."

Danny Campbell, who served as president of the Northwest flight attendants union when Anderson led the company, said the two had a good working relationship. After Anderson became CEO, Campbell told him that he could avoid some militant union actions if "flight attendants had a seat at the table -- we wanted to be part of any decisions that were coming down the pike."

(Rule No. 4B: "Do not confine the debate to senior executives because we learn from the people closest to the work.")

Campbell said that Anderson heeded his advice, consulted with the union before cutting jobs and the two sides worked out an "unprecedented" agreement that allowed attendants to take voluntary leaves that included unemployment and health benefits. But Campbell said he saw a side of Anderson that he didn't like when Anderson, then seeking financial concessions from attendants, refused to grant automatic payroll deductions of union dues after the attendants switched unions. "He felt he had leverage" and used it, Campbell said.

Delta's decision to merge set off a scramble among other airline executives to do the same. Analysts confidently predicted that the "Big Six" airlines would become the Big Three. Despite flirtations and outright courtships, no other deals materialized. In most cases, the prospect of having to combine fleets and workforces -- where seniority issues can bog down operations for years -- simply proved too daunting an undertaking at a time when high fuel prices are eroding airline cash balances.

Still, some analysts are betting that Anderson can pull it off.

"Historically, mergers did not do well because they had not been well thought out or well executed" or lacked the right leadership, said Julius Maldutis, who has worked for decades as an aviation consultant or airline analyst.

He said the Delta-Northwest merger will be successful because it has all three critical elements. "Anderson is today the leading airline executive, and he has clearly demonstrated his capability since he arrived at Delta," Maldutis said.

(startribune.com)

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