Delta, Pilots Reach Tentative Deal
Airline Averts Chapter 11,
As Labor Agreement Cuts
$1 Billion in Pay, Benefits
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
October 28, 2004
Delta Air Lines and its pilots union, after days of round-the-clock talks, reached a tentative accord calling for about $1 billion in wage and benefit cuts and narrowly spared the airline from a bankruptcy-court filing.
The agreement is the linchpin in efforts by Atlanta-based Delta to restructure its costs and line up new financing. The third-largest U.S. airline in terms of passenger traffic was prepared to file for bankruptcy-court protection yesterday if it couldn't secure the pilot deal.
The Air Line Pilots Association, which represents more than 7,000 Delta pilots, told its members that the union's leadership committee would review the agreement late last night and release details today. The agreement is subject to ratification by rank-and-file pilots, which is likely to take several days. A Delta spokesman didn't return calls seeking comment.
The two sides have been close to a deal for days, having already agreed on the most important portions of the agreement, primarily pay and other concessions valued at about $1 billion a year, according to people close to the situation. There were a number of sticking points remaining yesterday, though, most notably Delta's resistance to the pilots' demand for a voting seat on Delta's board, according to those people. The parties wouldn't immediately disclose how that standoff was resolved.
How long the pilot deal will keep Delta off the brink of a bankruptcy-court filing won't be clear until details of the agreement are disclosed and the airline's major creditors have analyzed them. Delta has been scrambling to restructure its debt with various creditors outside of bankruptcy-court and signed a number of deals in recent days contingent on reaching a major concessions package with the pilots. But Delta hasn't said how much of its $20.6 billion in debt must be restructured to ensure its financial health.
After more than 15 months of slow-moving talks, the high stakes contest of wills culminated with some white-knuckle hours in a meeting room at the Air Line Pilots Association national headquarters in Herndon, Va. Talks first intensified two weeks ago as union and company representatives flew to an oceanside resort in Florida, where the two sides mounted a concentrated effort to resolve the pay cut, details of a plan to preserve the pilots pension plans and the equity stake and board seat pilots were seeking in exchange for their givebacks.
Negotiators moved to Virginia this week and worked through the night Monday and into the evening on Tuesday before exhaustion prompted a break. They resumed yesterday, knowing that Delta's board would meet within hours to discuss proceeding with a bankruptcy-court filing late yesterday in U.S. Bankruptcy Court in New York.
The union didn't provide specific details, but according to one person familiar with the talks, the two sides had agreed to cut pilot pay by roughly one-third. Such a wage reduction would plunge Delta from the highest pay in the industry to the middle of the pack of U.S. airlines.
Delta awarded its pilots the richest contract in industry history three months before Sept. 11, 2001, a distinction that became dubious as rivals won steep concessions in the industry recession following the terrorist attacks. AMR Corp's American Airlines, the largest carrier, extracted concessions while on the brink of bankruptcy-court last year, while UAL Corp's United Airlines, the second biggest, won steep pay cuts from its pilots and other workers after it filed for bankruptcy-court protection in 2002.
Before the deal was done, Delta shares surged for a third-consecutive day before settling up 31 cents, or 6.7%, to $4.94 in composite trading on the New York Stock Exchange, partly in reaction to expectations of a pilot agreement and as a result of traders covering their short-sale positions.
The cost-cutting pact helps Delta avoid joining two other of the nation's six so-called legacy carriers, saddled with costs and cultures entrenched in the prederegulation era, now operating under bankruptcy-court protection. US Airways Group Inc. is fighting to survive after seeking protection from its creditors last month, and United Airlines has been in bankruptcy-court protection since December 2002. Earlier this week ATA Holdings Corp., parent of discount carrier ATA Airlines, the 10th-largest U.S. airline, sought bankruptcy protection and agreed to essentially sell its hub at Chicago Midway Airport to AirTran Holdings Inc.
Delta has warned for months that it might be forced to file for Chapter 11 if it couldn't drastically cut expenses. Like its competitors, Delta has been battered by high fuel prices, an escalating assault by discount carriers and weak pricing power.
Before the agreement Delta's annual pilot pay ranged from $50,000 for first year pilots to $288,000 for senior captains, not including overtime, according to a pay survey by AIR Inc., a pilot career-consulting firm. Pilots at American, by comparison, ranged in pay from $31,000 to $171,000.
Write to Evan Perez at evan.perez@wsj.com