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Pilots bailing from Delta

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Pilots bailing from Delta

Old 9th Sep 2004, 21:18
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Pilots bailing from Delta

Business/Finance News
09/09/2004 15:27:43 EST John Bazemore/AP Photo
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Some See Delta Plan As Bankruptcy Setup
AP Business Writer

ATLANTA - Key elements of Delta Air Lines Inc.'s broad turnaround plan will take months if not years to implement, suggesting the struggling carrier is setting itself up for how it will survive after a likely Chapter 11 filing, industry observers and legal experts said Thursday.
Delta's plan, announced Wednesday, includes cutting up to 7,000 jobs, but over 18 months. The shedding of its Dallas hub will not take full effect until Jan. 31. Its strategy to cut $5 billion in costs is targeted to 2006, and adding leather seats and in-flight entertainment to planes will take time.

By the Atlanta-based airline's own admission, however, time is running out.

"Those of us looking at it from an objective perspective are assigning a low probability of that plan being realized outside of bankruptcy," said James Owers, a Georgia State University corporate restructuring expert.

Delta said Wednesday that a bankruptcy filing could come as early as three weeks from now if it can't head off a mass exodus of pilots. Worried about their pensions, several hundred Delta pilots have retired early in recent months, and more have threatened to do so, the company says.

The pilots, meanwhile, have said they would be more eager to stay if Delta promised to preserve their accrued retirement benefits. Such a promise would be very unlikely and perhaps not even possible without setting up an expensive pension trust fund, observers say.

As for the $1 billion in pilot concessions the airline says it needs quickly to help avoid bankruptcy, the pilots union said last week it doesn't expect an agreement in the near future.

"The airline needs more than just concessions from pilots," said William Rochelle, an airline bankruptcy lawyer in New York. "They also need to restructure their business fundamentally and they have to re-negotiate aircraft financing. The latter two are very difficult to accomplish without the clout of Chapter 11."

Philip Baggaley, an airline analyst at Standard & Poors, said that if Delta can get the concessions from pilots it is seeking, that would go a long way in helping to avert bankruptcy.

But, he said in the context of the turnaround plan, "They also know that may not be possible and they are preparing for Plan B as well."

Baggaley said the pilot retirement issue has created a particular problem for Delta. It may be hard for the airline to avoid more early retirements because it may be more beneficial for pilots to cash in now, rather than wait until after bankruptcy if that happens.

Delta pilots who retire can elect to receive 50 percent of their pension benefit in a lump sum and the other 50 percent as an annuity later, regulatory filings show.

Delta's pilots are keenly aware of what has happened at bankrupt UAL Corp.'s United Airlines, which has threatened to terminate its employees' retirement plans.

"It's looking less and less appetizing for employees in bankruptcy," Baggaley said.

Said Owers, the Georgia State business professor, "If I was one of those 2,000 eligible Delta pilots, I would be retired yesterday."

Both the company and the pilots union were unable to say Thursday how many pilots, if any, put in their retirement papers after Delta's plan was announced Wednesday. Pilots are not required to, and typically do not, notify the union upon submitting their retirement notice, union spokeswoman Karen Miller said.

"Additionally, no notice is binding until the last day of September," for an Oct. 1 retirement, Miller said.

Delta officials did not respond to several requests for further comment on Thursday about the likelihood of bankruptcy. In detailing his turnaround plan Wednesday, chief executive Gerald Grinstein said bankruptcy is "a real possibility."

If Delta does file for Chapter 11, the airline could still have a hard time completing its turnaround plan on the schedule it has set.

S&P's Baggaley noted that one of the lessons that has emerged from United's bankruptcy is that it is hard to implement broad operational changes while simultaneously dealing with a time-consuming Chapter 11 court case.

"There are only so many hours in the day," Baggaley said.

Delta shares fell 12 cents, or nearly 3 percent, to close at $3.92 on Thursday on the New York Stock Exchange.

Last edited by skibeagle; 9th Sep 2004 at 21:47.
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Old 9th Sep 2004, 23:41
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Ironically, less than a decade ago, Delta was offering great incentives for early pilot retirement and all the available buyout slots were gladly taken.
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Old 10th Sep 2004, 11:45
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I read that since the bulk of the pilots eligible for choosing early retirement are senior, they are flying the International routes. As these routes are some of Delta's most profitable- it obviously doesn't bode well if they lose a large number of pilots in a short period of time.

Question- how long does it take to train a pilot on a new aircraft and/or international routes?

What kind of ripple effect would this have?

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Old 15th Sep 2004, 04:25
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"...a resolution that would allow exceptions to the pilots' collective-bargaining agreement, including letting Delta bring back some retired pilots as private contractors "for a limited time,"..."

This is pretty unusual in ALPA operations in my experience. This would be one heck of a side letter. Would the "private contractors" be in DALPA? Would they have their original seniority? Longevity? Pay dues? Could they strike?

I have heard of retirees coming back to work as sim instructors or vice presidents but flying as line pilots raises some interesting scope questions.

Delta Pilots Direct Negotiators
To Work Out Interim Agreement


September 15, 2004; Page A12

Delta Air Lines' pilots union directed its negotiators to work out an interim agreement with the airline, aimed at stemming an exodus of senior pilots that threatens to push the company into a bankruptcy-court filing.

The Air Line Pilots Association leadership committee ended a special two-day meeting in Herndon, Va., passing a resolution that would allow exceptions to the pilots' collective-bargaining agreement, including letting Delta bring back some retired pilots as private contractors "for a limited time," according to a message the union sent to its members. The union said any interim deal on pilot retirements would have to be ratified by the leadership committee and by members.

A pilot-retirement agreement would be separate from wider contract talks between the union and Delta that have dragged on for over a year. Delta is seeking more than $1 billion a year in concessions from the union. The union has offered cuts it values at as much as $705 million a year.

Delta Chief Executive Gerald Grinstein on Monday said he hoped to have an interim agreement on the retirement issue by the end of this week, but added that the union had rebuffed Delta's proposal for bringing back some pilots as private contractors. He previously warned that if the union and the company hadn't worked out an interim deal by month's end, Delta could be forced to file for bankruptcy-court protection.

Delta has had losses of about $5.6 billion since 2001 and has warned that a trip through bankruptcy may become necessary if it can't cut its costs soon. Last week Mr. Grinstein announced a turnaround plan that includes a restructured route system, abandoning its unprofitable Dallas-Fort Worth hub and cutting as many as 7,000 jobs.

But no turnaround plan would save the company if it continues to lose hundreds of its most experienced pilots. The third-largest U.S. carrier may have to ground part of its fleet, notably those flying its most lucrative routes, if it can't train replacements quickly enough.

Delta's financial problems and general worries about the security of airline-industry pensions have prompted hundreds of pilots to head for the exits, years ahead of their mandatory retirement age of 60. Pilots at Delta can take as much as 50% of their pension payouts as a lump sum upon retirement. Many are grabbing this option after seeing plans by UAL Corp.'s United Airlines to halt payments to its pension programs, a move US Airways said this week it would follow after filing for bankruptcy-court protection.
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