ATLANTA – Delta Air Lines is axing up to 7,000 jobs, cutting employee wages and shedding its Dallas hub as part of a sweeping turnaround plan aimed at helping the nation’s third largest carrier cope with high fuel costs and competition from low-fare rivals.
But even with those changes – part of a $5 billion cost-saving program – CEO Gerald Grinstein warned on Wednesday Delta would seek bankruptcy court protection if Delta can’t slow the pace of pilot retirements by the end of September.
Grinstein told reporters that he fears pilots could jump ship en masse because they are worried about their pensions and keenly aware of UAL Corp.’s threat to terminate the employee retirement plans at its United Airlines unit. Several hundred Delta pilots have retired early in recent months, and more have threatened to do so, he said.
“We have to know what we’re dealing with before the end of the month,” Grinstein said, after delivering a speech to 300 middle managers that was broadcast on the Internet.
The normal pilot retirement age at Delta is 60. Senior pilots with enough years of service can retire early at age 50, and roughly 2,000 are currently eligible, Grinstein said. If that many retired early, it would hurt Delta’s ability to operate the international flights that many of its senior pilots handle, Grinstein said.
Pilots union spokesman Chris Renkel said pilots would be less likely to retire early if Atlanta-based Delta would heed the union’s request for the company to promise not to try to take away any employees’ accrued benefits.
So far, Renkel said, Delta has refused to guarantee the future availability of lump-sum payments pilots can get if they retire early. “It is unfortunate that our management has chosen a Webcast environment to deliver this ultimatum,” Renkel said in a memo to pilots.
Before the retirement issue escalated, Delta had been warning investors for months that it may have to file for bankruptcy protection if it didn’t get deep wage cuts from its pilots. Management said on July 30 it needed a minimum of $1 billion in concessions from pilots to survive. Pilots have offered up to $705 million.
Grinstein told reporters Wednesday that talks with the pilots are continuing, “but time is running out” to reach an agreement. He declined to be more specific. Delta also is trying to restructure its roughly $20 billion in debt, and Grinstein said private discussions with creditors are going well.
Despite the latest measures, Grinstein said “bankruptcy is a real possibility.”
“We’re working hard and fast to avoid it,” Grinstein said. But he added, “If the pilot early retirement issue is not resolved before the end of the month, or if all of the pieces don’t come together in the near term, we will be required to restructure through the courts.”
On the New York Stock Exchange, Delta shares fell 44 cents, or 9.8 percent, to close Wednesday at $4.04.
In his speech to employees, Grinstein said that the airline will cut 6,000 to 7,000 jobs, or about 10 percent of its overall work force, over the next 18 months. More job cuts are likely in the future, he told reporters afterward.
Other elements of Delta’s turnaround plan include:
* A 15 percent reduction in administrative overhead costs, including management cuts.
* A reduction in wages for all employees.
* Larger employee contributions for health insurance.
* Expansion of its low-fare subsidiary, Song, by adding 12 more aircraft initially.
* A redesign of the primary Atlanta hub operation to add flights while reducing congestion.
* Redesigned aircraft cabins to include more conformable seating and more in-flight entertainment options.
* A still-to-be-developed employee reward program.
In addition, Grinstein said Delta will no longer use the Dallas-Fort Worth airport as one of its four hubs as of 2005. Instead, Delta will expand its hubs in Cincinnati, Atlanta and Salt Lake City with redeployed aircraft from Dallas-Fort Worth.
About 2,000 of the jobs to be cut will come from Dallas-Fort Worth and significant management cuts are expected at the airline’s Atlanta headquarters, Grinstein said.
Delta has lost more than $5 billion – $25 million alone in the last month because of the two hurricanes that hit Florida – and already reduced its workforce by 16,000 in the last three years. The changes announced Wednesday are part of Delta’s goal to save more than $5 billion by 2006.
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