Delta Air Lines Inc. is losing $5 million each day, much of it due to high jet fuel prices, as it tries to stay afloat, the company's chief financial officer testified in bankruptcy court Thursday.
Delta CFO Edward Bastian said the company's cash flow would break even for 2006 and generate $1 billion in 2007, but he argued that the airline would need to impose deep wage and benefit cuts on more than 6,000 pilots to fight volatile fuel prices, pay down debt and hedge against other unforeseen circumstances.
"Historically, the surprises that have come in this industry have been negative and not positive," Bastian said.
Delta currently has $1.4 billion in available cash on hand, but expects to lose $5 million each day from its usual operations over the next 90 days, Bastian said. Delta has an additional $1.2 billion in cash in the bank, but cannot use the money because the airline's contracts with its credit card processor and workers compensation insurance provider require Delta to keep cash on hand as collateral due to its deteriorating financial situation.
U.S. Bankruptcy Court Judge Prudence Carter Beatty questioned some of Delta's most recent decisions, including the recent shutdown of its Song low-cost carrier business. However, Bastian said the company is not completely abandoning Song.
"Song has been very successful. We're adopting its practices across the airline. It was a great experiment," he said, adding that the Song carrier service is something the overall carrier can be converted to.
Beatty also said the airline may have miscalculated how it accounts for expenses related to its pilots' pensions. "Somebody from Delta's side never added up what it will cost to pay pilot pensions. It is ultimately these numbers which are going to kill you," Beatty said.
Faced with rising fuel costs and stiff competition from low-fare competitors, Delta is seeking to slash $325 million from its collective bargaining agreement with its pilots. The Air Line Pilots Association, which has offered $90.7 million in concessions, has threatened to strike if the court grants Delta's request.
If the court approves the cuts, they would be on top of $1 billion in annual concessions the pilots agreed to in a five-year deal reached in 2004. That deal included a 32.5 percent pay cut and has been held up by the union as a sign of their willingness to negotiate.
With multiple witnesses yet to be called, it was considered unlikely Beatty would make a ruling on the contract Thursday. Court officials said the case would not be heard again until Monday, Nov. 28.
Delta, which filed for Chapter 11 on Sept. 14, has recorded losses of more than $11 billion since January 2001 and over that period has announced it would cut up to 33,000 jobs. Its loss in the third quarter was $1.13 billion.
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AP Business Writer Aleksandrs Rozens contributed to this report.
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