Sun, Mar 14, 2004 - Page 11 News List

Delta Air's president joins Virgin Group

RUMOR CONFIRMED After months of speculation, Frederick Reid on Friday said that he would oversee Sir Richard Branson's latest low-fare carrier in the US as of April 1

NY TIMES NEWS SERVICE , NEW YORK

The president of Delta Air Lines, Frederick Reid, said on Friday that he was joining the Virgin Group and would oversee the low-fare carrier that Sir Richard Branson hopes to start in the US next year.

Reid's departure from Delta, which will be effective on April 1, was widely rumored for the last several weeks. But the future of the carrier he is joining is by no means certain.

Federal law prohibits foreign owners from holding a majority stake in airlines that operate domestic routes. In addition, foreign owners can hold only 24.9 percent of a carrier's voting rights. Thus, to begin operations, Branson must find American investors to take a 51 percent stake, a search that has been under way for months.

Nonetheless, Virgin USA, the group's American arm, said on Friday that the new discount carrier planned to begin operating in the first quarter of 2005, becoming the latest in the Virgin family of airlines. Virgin Atlantic Airways flies from several American cities to Europe, while Virgin Blue, another discount carrier, operates in Australia.

Virgin, with its typical flair, has been publicly contemplating where to base its new airline, prompting a flurry of offers from interested cities. It has narrowed the contenders to Boston, Washington and San Francisco and said it planned an announcement soon.

Presumably that will come after Reid jumps aboard. "Fred will best position the airline to succeed in a competitive but poorly served market," Frances Farrow, chief executive of Virgin USA, said in a statement from the airline.

The yet-unnamed Virgin airline will be the latest competitor in an increasingly crowded field of new airlines, all offering low fares. Collectively, low-fare airlines carried about one-quarter of the passengers in the US who flew last year, according to the Transportation Department.

The appointment of Reid is yet another personnel move for Delta, which is in financial straits. The airline, based in Atlanta, has lost US$3.2 billion over the last two years, and it is in difficult negotiations with its pilots union, which it is pressing for deep cuts in wages and benefits.

Delta has changed its three top executives in the last four months. Last November, Delta announced the departure of its chief executive, Leo Mullin, who also served as its chairman.

Delta divided his duties between two board members: Gerald Grinstein, 71, a longtime industry executive, was named chief executive, and John Smith, 65, the former chief executive of General Motors, was named chairman. In making the appointments, Delta bypassed Reid, who had been thought to be the heir to Mullin.

No successor was named for Reid, a longtime industry executive who joined Delta in 1998 as its chief marketing officer. While there, he oversaw the development of Song, Delta's low-fare airline, which began flights a year ago next month.

Earlier this winter, Delta's aggressive plans to expand Song were put on hold while Grinstein conducts a review of Delta operations. Song officials say the airline has met its first-year goals.

But industry analysts question whether the carrier, which concentrates on the East Coast, is a viable strategy in the face of aggressive low-fare airlines like Southwest Airlines and JetBlue Airways.

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