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Delta to Slash Up to 7,000 Jobs, Shuffle Flights

September 09, 2004|From Bloomberg News

Delta Air Lines Inc., calling a bankruptcy filing "a real possibility," said Wednesday that it would cut as many as 7,000 jobs, slash wages and retrench in Texas as part of a plan to shave $5 billion in costs by 2006.

Delta, the third-largest U.S. carrier, will eliminate most flights at its Dallas-Fort Worth hub and increase service in Atlanta, Cincinnati and Salt Lake City, Chief Executive Gerald Grinstein told workers in a speech broadcast over the Internet. The carrier will boost the number of planes operated by its low-cost Song unit by a third.

Grinstein is seeking to avoid filing for bankruptcy protection after losses totaling $5.6 billion from 2001 to 2003. The Atlanta-based company still needs concessions worth $1 billion annually from pilots, including a 35% pay cut and pension changes, and has been in talks with their union for more than a year.

"As we are today, we cannot compete effectively and succeed long term in the marketplace," Grinstein said. Delta needs to settle at least some issues with its pilots by the end of the month, when a round of retirements could ground planes and disrupt operations, he said.

To cut costs, Grinstein, a 16-year Delta director who became CEO in January, is retiring four of 12 aircraft types to save on pilot training and is forcing workers to pay more for healthcare.

"He's made the very tough decisions," said Darryl Jenkins, an airline management professor at Embry-Riddle Aeronautical University in Daytona Beach, Fla. "Now that the plan is on the table, everything will move faster" in labor talks with pilots, he said.

U.S. airlines have lost money each year since 2001, when terrorist attacks deepened a travel slump, followed by the Iraq war, an airborne respiratory virus and record prices for jet fuel. UAL Corp.'s United Airlines, the No. 2 U.S. carrier, has been in bankruptcy since December 2002, and US Airways Group Inc. is seeking $800 million in concessions this month from its unions to avoid a second bankruptcy filing.

Delta stock dropped 44 cents, or 9.8%, to $4.04 on the New York Stock Exchange.

Delta is cutting 92% of its flights at Dallas-Fort Worth, its fourth-largest base, where AMR Corp.'s American Airlines is the major carrier, with 65% of the flights. "The losses there have continued, and they are at an unacceptable level," Grinstein said.

The largest portion of the job cuts, about 2,000, will be in the Dallas area, Grinstein told reporters after the Web cast. The cuts amount to 12% of Delta's workers.

Delta maintains a significant operation in Los Angeles, but Grinstein didn't detail how it would be affected.

The job cuts, which exclude pilots, will occur as much as possible through buyouts and attrition, Grinstein said. There will be "significant" pay cuts for remaining workers, he said, declining to be specific.

Delta will increase flights by 8% in Atlanta, 5% in Cincinnati and 18% in Salt Lake City. Atlanta's Hartsfield-Jackson International Airport, the world's busiest, is Delta's largest base, followed by Cincinnati and Salt Lake City.

The carrier will add 31 flights in cities including Boston, Orlando, Fla., and New York's John F. Kennedy Airport and add 12 aircraft to 36 operated by Song, Grinstein said. The unit saves money by turning planes around faster between flights. Most of the flight changes will occur by Jan. 31.

Delta had the third-highest unit operating costs among the 10-largest U.S. carriers in the second quarter. It cost the airline 10.3 cents to fly a seat a mile, compared with 11.2 cents at US Airways and 10.6 cents at Northwest Airlines.

The pilots union has rejected Delta requests for $1 billion in annual concessions and accused the airline of trying to "gouge" its members. The union wants concessions from vendors, suppliers, creditors and other employees.

The company has focused on pilot costs because labor is the industry's biggest expense, and Delta's pilots are the highest-paid unionized employees in the industry after American Airlines and United Airlines won concessions from workers last year.

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