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From:   Morey, Bill [mailto:Bill.Morey@delta.com]
Sent:   Tuesday, November 02, 2004 9:11 PM
To:     Delta, BrdCnclUpdate
Subject:        Doing the Numbers
Importance:     High

I want to bring you up to date on Delta's improved financial outlook now that the tentative agreement with the pilots is in the ratification process.

As of today, the company's financial and legal teams have arranged for approximately $1.4 billion in cash to tide us through the winter and into 2005. These funds were arranged as follows:

1. From GE Commercial Finance - $300 million in a revolving credit line secured by certain accounts receivable, plus $200 million in a loan secured by unspecified assets not already pledged against other Delta debts for a total of $500 million

2. From American Express - $500 million in advance payment to Delta for SkyMiles plus a $100 million loan for a total of $600 million

3. $355 million in the current quarter as a result of Delta's sale of eight planes to FedEx Corp. and Delta's stake in the online-travel company Orbitz Inc.

Today light crude oil for December delivery was down 51 cents at $49.62 per barrel on the New York Mercantile Exchange, the lowest close since Sept. 29. This is a trend that will improve our ability to recover. Delta stock closed today at $5.68 up 13 cents on news of GE's infusion of cash as well as $252 million in Delta short-term securities being tendered in our pending exchange offer.

Meanwhile Ray Neidl, analyst at Calyon Securities, lowered his "…12 month bankruptcy expectation for Delta to 20 percent, from 50 percent." He also said that Delta,

"should be able to get through 2005 even if fuel prices remain at $50 a barrel."
The deals with GE and American Express are contingent on Delta pilots ratifying their tentative agreement by November 11. If they do, that agreement will add an additional $1 billion in cost savings.

That brings you up to date on the numbers.
Now I'd like to give you a glimpse at the scene behind the numbers. As you may know, last Wednesday nearly ended with no pilot deal. For months there has been an incredible amount of work done behind the scenes by dedicated Delta people in many departments to prepare for any eventuality. As the deadline for a pilot deal drew near, all night negotiation sessions became more frequent. Jerry, the executive team and the Board of Directors were focused on supporting and guiding the negotiators. As related in the following article, these negotiations came right down to the wire Wednesday night. At the Board meeting on Thursday, the effort and strain of the previous day was evident. On your behalf the Board Council thanked the Board, the executives, the negotiating team and the staff of the departments whose assistance was critical in getting the tentative agreement for their dedication and hard work. We also acknowledged the MECs acceptance of the tentative agreement to Dave Miller, the ALPA representative to the Board and urged a speedy ratification.

In response to several inquiries about Mike Stark's reaction to the tentative agreement, I am including a letter from Mike that was written this past Sunday. As to where we go from here…I couldn't have said it better than Mike…

"Now it's time to put any animosity or ill feelings behind us and become proud again to say you work for and represent Delta Air Lines. Each of us, in our chosen niches - will ultimately make the difference concerning how we shape the future of the company - both today and tomorrow."

I'm ready to look to the future….I hope you'll join me.

____________________________________________________________________

Bargaining represented intense days for Delta, pilots

By MATT KEMPNER, DAVE HIRSCHMAN
The Atlanta Journal-Constitution
Published on: 11/01/04

Worn-out negotiators for Delta and its pilots union entered their final round of talks last week convinced they might be wasting their time.

After weeks of grueling meetings, Delta's three lead negotiators concluded that their counterparts negotiating for the Air Line Pilots Association intended to let the carrier slip into bankruptcy court on the gamble that a judge would demand fewer cuts.

Pilot negotiators thought the same of their counterparts: that Delta management had decided to seek Chapter 11 protection and that the negotiation was just a public relations ploy.

It was the negotiators' bosses Delta Chief Executive Gerald Grinstein and union chief John Malone who convinced their teams that the other side was serious about making a deal.

Neither sat in on most negotiating sessions at the union's national headquarters in Washington.
But they spoke regularly by phone with their teams and, more important, with each other. Grinstein and Malone swapped numbers to their homes and cellphones, with the agreement to call whenever needed.

Still, deadline after deadline passed without agreement, and the company prepared to file in U.S. Bankruptcy Court in New York.

Then, at 7:40 p.m. Wednesday, a terse message to union members delivered a reprieve. Negotiators had reached a tentative deal on a "pilot cost savings package," it said.

Both sides agree the deal produces the $1 billion in annual savings Delta said it has to have. Getting to that number, however, came after last-minute movement on big issues.

Once steadfast about getting no less than a 35 percent cut in pilot pay, Delta agreed over the final three days to accept 32.5 percent. Delta similarly budged on pilot stock options, giving up not 12 percent, but 15 percent of ownership in the company as a way for pilots to profit from a recovery.

But in the last hours of talks, Delta officials didn't give pilots the voting seat on the airline's board of directors that the union wanted. And the pay cut was far more than the pilots had offered in previous public proposals.

A union leadership council quickly signed off on the deal struck by their negotiators, but the final judgment is in the hands of Delta's 7,300 pilots. They vote Monday through Nov. 11 on whether to accept the new contract, which also changes their retirement plans to a less-costly model.

Malone told pilots he supports the deal. But in a venomous letter to union members Friday, he also described it as "awful" and "draconian" and wrote that the relationship between management and pilots "has been severely damaged."

The agreement, coupled with others Delta has with creditors, allows Delta to make "significant progress" on avoiding bankruptcy, Grinstein said. Ratification would meet the conditions for Delta to get $600 million in much needed cash from American Express.

A major loan deal from suppliers is believed to be in the works, also contingent on a ratified pilot deal.
Analysts believe those deals if successfully pulled together will give Delta several months of breathing room as it struggles to reverse a three-year $6 billion slide.

Bankruptcy looms
But as the last three weeks of drama played out and pilot talks bounced from Florida to Virginia, there were many reasons to believe negotiations would fail, sending Delta into bankruptcy court, where a judge and creditors not pilots or the CEO would call the shots.

Delta and the union wouldn't allow interviews with negotiators, but several people familiar with the talks described the give and take.

Within the past two weeks the stakes had grown so high that Grinstein opted against traveling to Memphis last Saturday for his son Keith's engagement party, thrown by the bride-to-be's parents.

Keith Grinstein says he sensed the strain on his father, who had been chief executive at both Burlington Northern railroad and Western Airlines, a carrier Grinstein had pulled back from the edge of bankruptcy 15 years ago.

"We talked about how it's going to come down to the wire. It's hard. He was clearly stressed about it," the younger Grinstein recalls. "For a guy who is 72 and has plenty of successes under him, he was taking this as a life and death challenge."

Malone, his counterpart at the union, is a 45-year-old Delta captain who landed planes on aircraft carriers for the Navy.

He was chief union negotiator on a 2001 contract inked three months before 9/11 that made Delta pilots the industry's highest paid. Now he had to oversee a reversal of those gains.

This week, union leaders will meet with pilots to discuss details of the tentative agreement, a process described as education by firehose deluging pilots with contracts so detailed they can fill more than 200 pages.

For pilot negotiators "the hardest part is over," says Jim Ford, a past ALPA negotiator at Delta who wasn't involved in the latest talks.

Still, "it won't be fun for them to stand up in front of their peers and deliver bad news and it's all bad news. ... And even though it's hard to stomach, I think it'll be ratified."

Requested in 2003
Delta first asked publicly for pilotconcessions in early 2003, though the contract wasn't amendable until 2005. Pilots agreed to open talks, but the atmosphere was soured by revelations that Delta's then-CEO Leo Mullin and his top lieutenants got big bonuses and bankruptcy-proof pensions even as losses mounted.

Mullin left at the end of 2003, and Grinstein's jump from Delta's board to the CEO post was expected to revitalize the talks.

But pilots insisted that Delta spread the pain by reworking its business plan and getting cost savings from management and nonunion employees, as well as creditors.

Grinstein took nearly nine months to unveil his turnaround plan including job and pay cuts for nonpilots announced in September.

Meanwhile, soaring fuel prices continued to erode Delta's finances, and some Delta employees grew angry with pilots for taking too long to give in to company demands.

At the same time, Delta executives implored creditors for relief from the airline's $21 billion in debt, which had ballooned as it borrowed to cover losses.

Creditors insisted on a pilot deal before they would commit, putting more pressure on the contract talks.
In recent weeks, meetings took on the air of a cross-country chase.
Company negotiators followed their union counterparts to Hollywood, Fla., holing up for talks as ALPA leaders converged on the Westin Diplomat Resort for a national board of directors meeting.

A bevy of financial analysts, lawyers, investment bankers and other consultants marched in and out of the talks as did specialists from the national ALPA offices veterans of other airline battles.

Delta hoped for an agreement by Oct. 17, just before the ALPA meeting officially convened. Negotiators made progress on complex work rule changes that determine how efficiently the airline uses its planes and pilot time. But much of the rest of the contract remained unsettled, from pay cuts to retirement and even how long the contract would last.

Deadlines extended
Negotiations continued in Florida for days after the ALPA meeting broke up, then moved to ALPA's headquarters outside Washington.

Discussions were heated. Talk of an imminent bankruptcy court filing circulated throughout Delta's ranksand in the media.

Grinstein set a deadline of Sunday, then convinced progress was being made let it slip to Monday. Negotiators worked through that night and the deadline was bumped to Tuesday and, finally, Wednesday.

After two deadlines passed, Delta officials insisted they could give no more, with at least two big issues left outstanding: the pilot demand for a voting board seat and stock options giving more than the 15 percent ownership that Delta was offering pilots.

A single seat on Delta's board, which currently has nine voting members, wouldn't give pilots control, but it would give them more access to financial and corporate information and more chances to make their case directly to the board.

While the pilots considered Delta's apparent final offer, the carrier's board awaited word as it met at Delta headquarters in Atlanta. Agreement finally came down around 6 p.m., followed by the message to pilots.

Pilots across the industry have seen proof that it's dangerous to let a carrier slip into bankruptcy reorganization, where their bargaining leverage is reduced because a judge can mandate cutbacks.

"We know that lesson all too well," says Jack Stephan, a US Airways captain and spokesman for the union there. "Good things don't happen in bankruptcy court."

"You just realize a deal outside of the courthouse is probably better for your membership than what you will get inside the courthouse."

http://www.ajc.com/business/content/business/delta/1004/31deltatalks.html

______________________________________________________________________

Sunday, October 31, 2004

Dear All,

Happy Halloween - and hopefully everyone makes it home safely if you're out and about last night or tonight.

This will be short with more to follow in the coming weeks.

The pilot's tentative agreement (TA) will be a tough document to read, digest, and accept. But at the core, we knew it had to be done. Despite the timeframe and criticism management and ALPA endured from the gallery, the outcome was an agreement both sides will use to help the company get healthy. We will not only stay in business and avoid Chapter 11 - but become more competitive and a respected force in the industry again.

The important aspects to consider are the following:

1. Our success in restoring confidence and morale is a challenge each employee will face. Past history tells us it's a hallmark of Delta's people. We do make a difference.

2. We avoided bankruptcy and should continue to do so, despite the naysayers.

3. Debt is being reduced and restructured.

4. The capital markets believe we have a viable plan and will open back up to us.

5. We still have what most families in the U.S. would consider a good paying job, benefits, vacation, and work environment.

6. We still have a retirement plan in place. Our fellow workers at United and USAir may not be as lucky.

7. The threat to existing retiree benefits has subsided - a piece many of us will eventually appreciate - and sooner than you might believe.

8. Some folks will get a better deal than others - which has always happened in our industry with each new contract between labor and management. To get upset about it is like thinking no one should get a Green Slip if everyone doesn't. The progression up the ladder in our particular profession will always be different - and at times, unfair. A seniority based system will never reward greater intelligence, hard work, or talent. But it will help you remain safe and prudent - a trait our passengers appreciate.

9. Delta has a window of opportunity to be a first class leader instead of a second rate follower.

10. Despite the moving targets and unforeseen elements both sides faced, both management and ALPA deserve credit for getting it done. The thousands of thankless hours spent by both sides will be acknowledged by few among us. But their families know.

Now it's time to put any animosity or ill feelings behind us and become proud again to say you work for and represent Delta Air Lines. Each of us, in our chosen niches - will ultimately make the difference concerning how we shape the future of the company - both today and tomorrow.

Thank you for taking the time to read these articles.

Take care.

Respectfully, Mike Stark