Exec: Delta Needs Pilots' Cuts to Survive

March 14, 2006
Delta Air Lines Inc. is "tapped out" and can't borrow any more money to cover its mounting losses, making deep pay and benefit cuts it is seeking from its pilots essential to its survival.

Delta Air Lines Inc. is "tapped out" and can't borrow any more money to cover its mounting losses, making deep pay and benefit cuts it is seeking from its pilots essential to its survival, the company's chief financial officer told an arbitration panel Tuesday.

But the pilots shot back that the likely termination of their defined benefit pension plan should count for something.

CFO Edward Bastian testified before the three-member panel as part of Delta's effort to void its contract with its 6,000 pilots so it can impose up to $325 million in long-term cuts.

The pilots union has said repeatedly it will strike if its contract is rejected. A walkout would put the nation's third-largest carrier out of business, Delta has said.

"We are clearly in the worst shape and are the most fragile of anyone in the industry," Bastian told the panel.

Bastian also told the panel that what the company is asking of its pilots could be worse.

"One of the things that keeps me up at night is whether we're being aggressive enough," Bastian said. "I wonder whether we should be asking for more, not less. I'm not suggesting we do, but that's the thing I worry about."

He said in an interview outside the hearing that Delta has no current plans to seek more cuts from its pilots after this request, but he added there can be no guarantee.

Lee Moak, chairman of the union's executive committee, said Bastian's comments raise concerns for pilots.

"I'd like to believe they're trying to do it once, but historically that has not been the case," Moak said in an interview.

The pilots have acknowledged that the company is in trouble and they have offered to help. But the pilots argue that they previously gave Delta $1 billion in annual concessions in a five-year deal in 2004, and they believe the amount of further concessions the company is seeking is too much. They also argue that since the company has admitted it will likely terminate the pilots' defined benefit pension plan, they should receive some credit for the savings they say the company will reap.

Under cross-examination from union lawyer Bruce Simon, Bastian was pressed on whether the company has already told its pilots the pension plan will definitely be terminated.

"I am unaware of that," Bastian said. He then paused and added, "Certainly not in my presence."

Atlanta-based Delta, which is operating under bankruptcy protection, has lost roughly $12.6 billion since January 2001, the year the industry downturn started amid the terrorist attacks.

The panel, on the second day of two weeks of hearings at a Washington hotel, must decide by April 15 whether to grant Delta's request to reject its pilot contract. The pilots, meanwhile, will wrap up their strike authorization vote on April 4. Typically, if such a vote is approved, union leaders could set a date for a strike.

Delta has said a strike by its pilots would be illegal, and it would likely seek a court injunction if its pilots walk off the job.

Bastian told the panel that Delta expects fuel prices to remain high and ticket prices to remain low because of competition and too many seats available in the industry. Therefore, he said, Delta needs to keep cutting costs to survive long-term. He noted the pilot cuts the airline is seeking are only about 10 percent of the $3 billion in overall annual cost cuts Delta is seeking.

Delta has said it hopes to emerge from bankruptcy in the summer of 2007.

The airline had asked the New York bankruptcy court in November to void the pilot contract, but shortly before a judge was set to issue a decision, the company and its pilots reached a deal on interim pay cuts.

That deal, equal to a little less than half of what the company is seeking on an annual basis, would be replaced by the long-term deal the two sides have been negotiating since December. They missed a March 1 deadline to settle on their own, sending the matter to arbitration.

In the latest negotiating proposals, the company has agreed to reduce its request to $305 million in cuts annually, while the union said it is offering $140 million annually.

According to the company, the average earnings of pilots last year who worked the full year was more than $157,000.


On the Net:

Delta Air Lines Inc.: http://www.delta.com

Pilots Union: http://crewroom.alpa.org/dal/DesktopDefault.aspx

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