Analysis: Pilots' delays helped Delta
By DAVE HIRSCHMAN
The Atlanta Journal-Constitution
Published on: 11/02/04
In the end, pilots turned out to be the best friends Delta executives had.
If not for their obstinate refusal to accept pay cuts without in-kind sacrifices from Delta's creditors, the ailing airline wouldn't have been able to wrest hundreds of millions of dollars in new investment and debt relief from creditors this fall.
Thanks to the tentative agreement Delta struck with its pilots union last week, Atlanta's largest private employer a cornerstone of the region's economy dodged bankruptcy and has a real chance to reinvent itself in the leaner, more muscular form that Chief Executive Gerald Grinstein has in mind.
"There's a certain irony to the current situation," said Les Hough, a professor and labor relations expert at Georgia State University's Usery Center. "Without the pilots' hard line, and their ultimate willingness to give concessions, management wouldn't have had the clout it needed with creditors."
If pilots had simply gone along with Delta's appetite for pay cuts early on, the airline might not have had the leverage to pull off this deathbed conversion. Pilots shouldn't expect gratitude, though.
Even though each of them gives up $130,000 a year on average in pay, benefit and work rule concessions, they're likely to remain cast as coddled prima donnas prodigal sons in the so-called Delta family.
Missteps at top
Former top executives Leo Mullin and Fred Reid played that card when they cynically trumpeted their own "voluntary" 10 percent pay cuts at the start of pilot concession talks in 2003, never mentioning the fact they were collecting millions in dubious bonuses and bankruptcy-proof pensions.
They indulged their vanity with costly diversions like Song, the trendy airline within an airline. They borrowed to the hilt, leveraging billions of dollars in previously unencumbered Delta assets.
And they antagonized their best customers by making SkyMiles harder to redeem and adding charges for schedule changes.
Now that Mullin, Reid and other executives once deemed indispensable have pulled the ripcords on their golden parachutes, Delta's employees pilots among them are left with the real work of rebuilding the airline.
Pilots are the only large unionized work group at Delta. That's always made them unpopular within the paternalistic company. And pilots have sometimes behaved in ways that seem calculated to make them pariahs. After signing the richest contract in airline history three years ago, they unconscionably accepted pay increases as other employees were axed by the thousands. The latest pay raise, 4.5 percent, came on May 1.
Delta pilots stubbornly clung to their good deal which pays a typical midcareer captain around $225,000 a year while their industry was beset by an almost-biblical series of calamities: the suicide attacks of 2001, overbearing security, SARS, two wars and $55-a-barrel oil.
Now, pilots have grudgingly agreed to pay cuts aimed at cutting Delta's total pilot costs in half. True, they only went along at the last possible moment when the threat of Chapter 11 bankruptcy was imminent.
The company craftily used pilot negotiations to help unlock key creditor deals, then put pressure on the union by making those deals contingent on a $1 billion cut in pilot costs.
Furloughs likely
But even so, $1 billion a year is a lot for pilots who used to cost $2 billion. The bad news for fliers isn't over, either, as there are likely to be more pilot furloughs under terms of the new contract.
The Delta pilots who remain will earn less, and they'll work more. There's also no guarantee that Delta will be able to permanently avoid bankruptcy court.
Delta CEO Grinstein memorably told workers he was their "last, best hope" for the future shortly after he accepted the top job.
Now, the 75-year-old airline's fate and Grinstein's vaunted turnaround plan are in the hands of Delta pilots and other employees. They are his last, best hope for a less turbulent and more profitable future.