Judge OKs Delta Pilots' Concessions Deal

A hard fought pay cut deal behind them, Delta Air Lines Inc. and its pilots will look to heal wounds that came with the battle that brought the nation's third-largest carrier to the brink of a devastating strike.

A bankruptcy judge approved the $280-million-a-year concessions deal Wednesday, hours after the airline's rank-and-file pilots gave the pact their nod by a vote of 61 percent in favor.

Court approval came despite an objection by the government's pension insurer, which insisted that a $650 million note and $2.1 billion unsecured claim that Atlanta-based Delta has promised the pilots should belong to the agency if the pilots' pension is terminated as expected.

After the dual decisions, company and union leaders sent letters to the pilots encouraging them to come together as Delta looks to emerge from Chapter 11 in the first half of next year.

Asked about morale among pilots, who have been hit with two major pay cuts in two years, the chairman of the union's executive committee, Lee Moak, said he isn't concerned.

"I think the pilots have been able to separate the issues," Moak said in a telephone interview.

Chief Financial Officer Edward Bastian said the company is looking forward.

"It was probably the most significant negotiation transaction we'll face as part of this bankruptcy process," Bastian said of the concessions deal. "It gives us the ability to put the past behind us and make Delta a success again."

The agreement, which runs through 2009, takes effect Thursday.

The deal, which replaces an interim pact agreed to in December, includes an initial 14 percent pay cut for pilots and assurances the pilots union won't fight any company effort to terminate the pilots' pension.

Judge Adlai Hardin signed the agreement Wednesday during a hearing in White Plains, N.Y. Earlier in the day, the airline's pilots approved the deal. The judge's approval was the last hurdle in the process.

Hardin heard arguments from lawyers for both sides, but determined in the end that the agreement was in the best interest of the airline.

The Pension Benefit Guaranty Corp. said afterward that it was reviewing its options, including the possibility of an appeal.

Also Wednesday, Delta said in a filing with the bankruptcy court that it lost $27 million in April.

Excluding reorganization items, it would have earned $22 million in the 30-day period. As of April 30, Delta had $2.5 billion of unrestricted cash. It has posted losses of more than $14.4 billion since January 2001. Delta said it planned to file thousands of pages of disclosure documents with the court detailing its finances and its obligations.

In a letter to pilots after the vote was disclosed, Delta's top three executives said the ratification by the rank-and-file marks a new beginning for the airline.

"If we seize this opportunity rather than squander it, Delta Air Lines once again can proudly become the gold standard of the industry," the executives said.

Delta and negotiators for the pilots union reached the deal in April. A week later, union leaders ratified the deal, paving the way for the rank-and-file pilots to do the same. Before the agreement being reached, Delta had asked an arbitration panel to reject its pilot contract so it could unilaterally impose the cuts it wanted. The pilots had threatened to strike if the contract was voided.

Cooler heads prevailed.

The cuts that have been agreed to are in addition to $1 billion in annual concessions the pilots agreed to in a five-year deal in 2004.

In court, Hardin rejected the PBGC's main argument, that the deal between Delta and the pilots union was illegal.

He said that although, in some people's minds, there was a link between the $650 million promise and the potential loss of the defined benefit pension plan, that "did not render a private agreement between an employer and union illegal."

"That is not a legal proposition I can endorse," he said. "So I must reject that."

Separately, a retired pilots group had objected to the new deal out of concern the Delta deal would ultimately reduce their benefits based on the pension being terminated. But their objection was resolved at Wednesday's hearing.

As part of the settlement, Delta has agreed to provide retired pilots an administrative claim of $9 million to cover a portion of certain pension benefits that the retired pilots would have gotten since the bankruptcy filing in September had the benefits not been frozen. An administrative claim is a debt incurred by a company that has filed for bankruptcy, with court approval.

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