Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, August 24, 1994 TAG: 9408250045
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
The deal will greatly reduce expenses for Delta and is AT&T's biggest splash into a fast-growing part of the technology world known as outsourcing, in which businesses hire someone else to run their computers and communications so they can concentrate on their own products or services.
But the Delta-AT&T relationship doesn't fit the traditional outsourcing arrangement, in which an outside company barrels in and takes charge of both equipment and employees.
Instead, the companies created a 50-year joint venture to run Delta's data systems, except those for reservations and flight operations.
During the first 10 years, Delta has agreed to buy $2.8 billion in computers, communication equipment and services from the venture, which hasn't been formally named. The venture is required to provide Delta with the best-valued products, even if they aren't AT&T's.
With the arrangement, the nation's third-largest airline expects to save $400 million over 10 years through lower costs and better productivity, said chief executive Ronald Allen.
``This agreement is another part of our total corporate effort to return to sustained profitability,'' he said at a news conference with AT&T executives.
Delta in April launched a 3-year, $2 billion cost-cutting program that includes eliminating up to 15,000 jobs. The venture with AT&T takes 1,200 of those employees.
In time, the venture will sell technology products and services to smaller airlines. That would let Delta compete with AMR Corp., parent of American Airlines, which already sells technology and specialized services to other airlines.
Analysts said the arrangement demonstrates creativity by AT&T as it muscles into a business dominated by firms such as Electronic Data Systems Corp., Computer Sciences Corp. and IBM.
``It's evidence AT&T has become a very flexible company,'' said Blake Bath, analyst at Sanford C. Bernstein & Co.
The arrangement with Delta gives AT&T a chance to work out some difficulties it may encounter in the new business while still providing value to the airline, said Ken McGee, vice president of the Gartner Group, a Stamford, Conn., technology consulting firm.
Three years ago, AT&T acquired NCR Corp., a large computer maker, with the idea that telephone and computer technology eventually would meld into one business.
``The acquisition of NCR at the time contemplated solutions that combined communications and computing,'' AT&T's Allen said. ``We didn't know what they were and it didn't make a lot of difference what we thought they were until customers were ready to identify needs.''
by CNB