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Employees warned of pay cuts

Chapter 11 filing will be used to reorganize airline operations

By JOHN MUNFORD
jmunford@TheCitizenNews.com

Delta Air Lines’ filing for Chapter 11 bankruptcy protection Wednesday stands to affect thousands of Delta employees living in Fayette, Coweta and South Fulton counties.

The bankruptcy filing was necessary to “make Delta a simpler, more efficient and cost-effective airline,” according to a statement on the company’s Web site. The company also announced Thursday that more job, pay and benefits cuts will be coming.

“Any changes in pay and benefits will be in the context of a comprehensive business plan that is equitable and involves other Delta stakeholders,” CEO Gerald Grinstein said in a statement issued Wednesday. “Importantly, Delta people at every level and across all work groups also will have a greater ability than they do now to benefit from our financial recovery and operational excellence.”

In a memo to employees, Grinstein said the company’s troubles were due to “persistent record-high fuel prices and the aggressive pricing pressures brought on by low-cost carriers intent on beating us” though the company has made significant progress with its transformation plan.

“Despite everyone’s sacrifice and the significant improvements we are making together, unless we took this step we soon would no longer have had enough cash to run our operation, pay our bills and protect our assets,” Grinstein said in the memo. “There have been other difficult times in Delta’s history, and the company has always turned to its people to ensure safety, to provide quality passenger service and to go the extra mile.”

On Monday, company officials have presented the Delta pilots’ union, The Air Line Pilots Association, with proposed salary cuts.

The company’s transformation plan is aimed at saving $5 billion a year by the end of 2006 compared to the company’s 2002 figures. As of June 30, the company had implemented initiatives to meet about 85 percent of those goals, officials said.

Those changes have included major cost-cutting initiatives and massive network, scheduling and operational improvements, officials said.

Delta will continue its normal business operations, which includes more than 7,500 daily flights, many out of its major hub here at Hartsfield-Jackson International Airport. It is the world’s second-largest airline in terms of passengers carried.

There are an estimated 3,500 Delta employees living in Fayette County, and likely thousands more in nearby Coweta and Fulton counties. The company’s filing for Chapter 11 bankruptcy likely means future pay reductions and job cuts will have an effect here.

Last year, the average salary of Fayette’s Delta employees was $92,829, according to information from the company, but that figure is likely lower now due to pay cuts and other developments, said Brian Cardoza of the Fayette County Development Authority.

With even a conservative estimate, the airline pumps about $200 million in salary to Fayette each year, Cardoza said. But he thinks Fayette won’t be drastically affected by Wednesday’s bankruptcy announcement, as earlier pay cuts had many Delta employees tightening their belts already.

“Everybody who works at Delta has probably started going, ‘Do I really need somebody to cut my grass once a week?’” Cardoza said. “Some might cut back from going to a restaurant from three nights a week to maybe one.”

In that light, it’s mostly local businesses that will feel the heat collectively as Delta families cut back their spending, Cardoza said.

The good news is what Fayette doesn’t have relating to Delta, Cardoza said.

“We don’t have any major businesses here that are totally dependent on Delta financially,” Cardoza said.

An unknown number of Delta retirees in the area are also worried about the status of Delta’s pension program. The company will not be making its next scheduled payment to the program because of the need to keep as much cash on hand as possible for operations, Grinstein said in a letter to Delta retirees.

But the plans will still pay monthly retirement benefits, and the company is not terminating the retirement plan program.

The company is hoping that federal legislation introduced by U.S. Senator Johnny Isakson and U.S. Rep. Tom Price, both of Georgia, will help the airline by stretching the company’s pension plan contributions over a greater time period, alleviating much of the financial burden. Gov. Sonny Perdue and congressmen Lynn Westmoreland and David Scott have also pledged to help the airline; Westmoreland sits on the House Transportation Aviation subcommittee.

Also, Georgia legislators met Thursday to discuss how the state can assist Delta’s financial recovery. This year, the legislature passed a bill that caps the amount of fuel taxes Delta pays at $15 million.

The company previously eliminated its hub operation at the Dallas/Ft. Worth airport, added new customer-focused airport technology and outsourced a significant portion of its heavy maintenance, among other cost-cutting steps.

Among the steps the company plans to make with the Chapter 11 filing are:

• Reconfiguring the company’s fleet of aircraft, eliminating four aircraft types so only seven mainline aircraft types will be used. This allows the company to increase fuel efficiency and reduce capacity on routes where Delta currently offers more seats than necessary to meet customer demand.

• Using smaller aircraft on many routes.

• Continuing to “right size” hub operations.

• Increase capacity on international routes with greater profit potential.

The hub changes include reducing the flights offered at the Cincinnati hub, but increasing business and leisure flights from the Atlanta and Salt Lake City hubs, according to the company. The company will add nonstop service to Maui beginning Dec. 16.

Delta has lined up $2.05 billion in post-bankruptcy filing financing to help support operations during the bankruptcy proceedings, officials said.

“Delta’s financial problems are severe, but by no means insurmountable,” Grinstein said. “We are optimistic about our future because we have been working for months on a business plan that builds on the substantial improvements we’ve already made and demonstrates that Delta can return to profitability once the company is able to restructure appropriately.”

For more information, visit www.delta.com/restructure.