By James Pilcher
Enquirer staff writer

GERALD GRINSTEIN

• Job: Delta Air Lines CEO since Jan. 1 • Age: 72 • Career highlights: Strategic adviser to Madrona Venture Fund, a Seattle-based venture fund, and principal of Madrona Investment Group LLP; executive officer of Burlington Northern Santa Fe Corp. from 1987-1995 and its chairman for four months until December 1995, when he retired; CEO of Western Air Lines from 1985-1987. • Affiliations: Has been a Delta director since 1987 and served as chairman of its board from 1997 to 1999; also has been director of Agilent Technologies Inc., PACCAR Inc., The Pittston Co., and Vans Inc. Source: Enquirer research

Delta Air Lines' pilots swatted the ball back into management's court Tuesday with their offer to take big pay cuts.

But staring back across the net is someone who has been there before, and Gerald "Jerry" Grinstein clearly knows how to return serve.

After all, Grinstein extracted major concessions from a union, turned around a financially struggling airline and even stepped in from a behind-the-scenes role on a board of directors - all two decades before he took over as chief executive of Delta on Jan. 1.

His experience at Western Airlines in the mid-1980s and throughout his career as a corporate attorney, investment partner, major university board member and head of a major railroad has airline industry veterans and people who know him well saying Grinstein is the man for the job - if the job can be done.

What a job it is. Delta has lost $5 billion since the Sept. 11 terror attacks, including $1.96 billion in the second quarter of this year.

The nation's third-largest carrier, Delta has an unwieldy cost structure - thanks to industry-high pilot pay and high wages for other employees that have kept other unions at bay.

All that comes at a time when low-fare carriers and Internet travel sites are pushing prices and revenue down.

Essentially, airlines such as Delta say they can't charge enough for tickets to make money.

And the company is pressuring its pilot union for major concessions while turning to other non-union employees for cuts as well, heightening tensions and lowering morale at the company that once bragged of its family atmosphere.

"I'm not going to say that he can turn it around at Delta, but if anybody can do it, it's him," says Julius Maldutis, a 30-year veteran Wall Street airline analyst who now runs his own consulting firm in New York. "Anybody else - forget about it, it's a lost cause. He at least improves the chances to 50-50 of pulling it off."

Grinstein declined interview requests. But those who know the 72-year-old Seattle native say that Grinstein has always been able to improve whatever situation he found himself in.

"He's turned around a number of situations in business, academic and non-profit circles out here," says Steve Reynolds, president and chief executive officer of Puget Energy and Puget Sound Energy, the Seattle area's main energy utility. "He's a natural leader, and I think he's committed to helping Delta.

"He must be, to move across the country at his age to take on this challenge."

Proven track record

Nothing prepared Grinstein for the current situation like when he took over ailing Western Airlines in 1983 under circumstances similar to Delta's. A corporate lawyer by trade, Grinstein was on the board at Western when he was asked to take over as CEO at age 55. At that point, Western was a mess, losing nearly $250 million between 1980 and 1984.

Grinstein, who had no experience running a major airline, immediately began a campaign to win over employees and improve morale by meeting with workers and flying across the Western system as much as possible. He even donned a cooking apron and flipped burgers at several parties celebrating the airline's 60th anniversary in 1985.

But there was an underlying agenda- Grinstein was desperately trying to convince workers at the 92 percent-unionized company to take major pay cuts to turn the company around. That would be on top of a previous 10 percent pay cut.

Somehow he succeeded, but by using as much carrot as stick. He extracted another 12.5 percent pay cut from the workers in 1984 and 8 percent productivity increases, according to news reports from 1984. In return, workers got a third of the company's common stock, four voting seats on the airline's board, and a profit-sharing plan.

"Without the investment they made through those concessions, there probably would be no Western Airlines today," Grinstein told the Los Angeles Times in 1986.

Grinstein came through on his word, presenting a check for $10 million to workers during that year, or about $1,100 per employee, after the airline returned to the black.

After that, Grinstein was instrumental in the deal that saw Delta purchase Western for $860 million in 1987.

Retaining a seat on Delta's board, he took on a new challenge - running Burlington Northern Railroad, where he oversaw the merger with Santa Fe Ra ilroad in 1995.

"He is very direct and very open, but also very sensitive to the employees' needs, and that is what will get him through this as was proved by the Western situation," Maldutis says.

Funny but direct

"Direct" and "open" are words often used by colleagues and friends to describe Grinstein. But so are "wise" and "witty," with those who know him saying that the combination of traits makes him a great leader.

"He has a wonderful and all-encompassing mind ... and he has an ability to get people to understand the ramifications of any given problem beyond their own stake," says Bill Gates Sr., co-chair of the Bill and Melinda Gates Foundation founded by Gates' son, who is chairman of Microsoft.

"He has a skill for disarming the situation with a wonderful sense of humor and using that appropriately," says Gates, who has known Grinstein for more than 30 years.

In addition to his position as chair of the University of Washington board of regents, Grinstein started an investment capital company, and also has served as chair of the Seattle Symphony among other non-profit boards.

"He has the ability to ask the probing business question," says Dr. Paul Ramsey, dean of the university's school of medicine, and who worked with Grinstein recently on recruiting a new university president. "But as importantly, he insists upon accountability for himself as well as the organization. That should serve him well at Delta in that situation, I should think."

Lessons learned?

By all accounts, Grinstein is using those traits to follow much the same path as he blazed at Western, making trips throughout the Delta system to meet face-to-face with pilots and other workers.

He also keeps them updated with periodic memos and tempered his salary, saying he would work for $500,000 and no bonuses to help soothe bad feelings over a pay scandal that enveloped previous CEO and chairman Leo Mullin.

Grinstein has at least convinced the Delta pilots - the airline's lone major unionized workgroup - that he believes everyone will need to sacrifice.

"He knows that we can't do this just on the backs of the pilots - it's the only way this will work," says Chris Renkel, spokesman for Delta's branch of the Air Line Pilots Association.

Maldutis says Grinstein made "a masterstroke" Tuesday by inviting all workers, not just pilots, to a meeting next week to discuss and develop a restructuring plan.

"Rather than going to the board and then telling the employees what is going to happen, he is getting his employees to be part of the solution, not part of the problem," Maldutis says. "That is the mark of someone who very clearly recognizes that you've got to bring everybody under the tent and have everyone contribute.

Still, those who know him acknowledge that the challenges may be too great even for Grinstein. But they say that if anyone can do it, it's he.

"I even tried to talk him out of it, but he is very determined and feels obligated to turn this around," says Bill Ruckelshaus, a long-time friend who founded the Seattle-based venture capital firm Madrona Investment Group with Grinstein in 1996. "He has the ability to get people to see the bigger picture, and this is the ultimate example of that.

"If it is possible to do it, I'm confident he can - it's just a question as to whether it's possible."

E-mail jpilcher@enquirer.com