Delta Air Lines, AT&T Announce Joint Venture for Info TechnologyBy Elizabeth Corcoran
The Washington Post
Delta Air Lines Inc. and AT&T said Tuesday that they are creating a joint venture that will manage Delta's communications and computing services, except for its reservation system.
For Delta, which reported a $408 million loss for the fiscal year that ended June 30, the joint venture is intended to save money, absorb about 1,200 Delta employees and eventually generate revenues. For AT&T, it is a sign that its Global Information Solutions division is gaining momentum.
The as-yet unnamed company, which will be based in Atlanta, will initially be staffed by the approximately 1,200 Delta employees and 30 people from AT&T. Although neither company would reveal what kinds of resources it plans to put into the venture, they described it as a "50-50 joint venture."
Worldspan, a company that is 38 percent owned by Delta, will take over Delta's reservation system. About 300 Delta employees will be transferred to Worldspan.
Delta Chairman Ronald Allen said the airline hopes to save about $400 million over the next decade by relying on the AT&T joint venture for information technology. During that time, Delta expects to buy about $2.8 billion of the fledgling company's services. Eventually, the joint venture may sell its services to others in the transportation industry.
Allen would not discuss precisely how Delta hoped to achieve cost savings from the deal, other than to say he hoped to see "productivity gains." Typically, any benefits from contracting out for data processing occur because the outside firm handling them consolidates expensive resources and knowledgeable staff.
The announcement culminates a two-year effort at Delta to find another company to run its information technology systems. Delta has said it wants to trim its costs by about $2 billion by June 1997.
Even though this deal may look small, "saving $40 million a year (for 10 years) is a big deal if it goes straight to the bottom line," said Thomas Longman, an airline industry analyst with securities firm Bear, Stearns & Co. in New York.
The deal "is positive for AT&T," said Connie Luecke, a telecommunications analyst with securities firm Duff & Phelps Inc. in Chicago. AT&T has been trying to transform its information solutions division for "one-stop-shopping" she said.
Blake Bath, a telecommunications analyst with Sanford C. Bernstein & Co. in New York said that the key for AT&T is what follows the agreement with Delta. "In and of itself, this deal doesn't mean much," Bath said. "But if this deal is part of a trend, it's wonderful."