Delta unveils broad changes

No. 3 carrier to eliminate 7,000 jobs, Dallas hub

Low-cost Song unit to grow

September 09, 2004|By THE DALLAS MORNING NEWS

DALLAS - Delta Air Lines Inc. unveiled changes yesterday that will remake its business, but officials warned that soaring costs still could land the nation's No. 3 carrier in bankruptcy court.

The broad restructuring touches virtually every area of the Atlanta-based airline's operations.

Delta will eliminate up to 7,000 jobs systemwide over the next 18 months, including 3,600 in North Texas, as the airline shuts down its money-losing hub at Dallas-Fort Worth International Airport.

The carrier will eliminate 92 percent of its flights at Dallas-Fort Worth and increase service in Atlanta, Cincinnati and Salt Lake City, Chief Executive Officer 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.

Delta also will add 31 flights in cities such as Boston; Orlando, Fla.; and New York (at John F. Kennedy International 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.

Grinstein said he engineered the plan to respond to a new travel landscape that is being controlled by low-cost, low-fare rivals.

"What we're now seeing is something so fundamentally different that there is no comparison to the past," he said yesterday in announcing the changes. "What we're doing is building the right airline for the era."

The most drastic changes are coming at Dallas-Fort Worth, where Delta has lost $900 million since 2001, according to a letter sent yesterday to employees of regional affiliate Atlantic Southeast Airlines. The carrier made money at Dallas-Fort Worth in only three of the past dozen years.

After Jan. 31, Delta will fly only 21 daily departures from Dallas-Fort Worth, compared with 254 today.

AMR Corp.'s American Airlines will take up some of the slack. Last week it announced it would add 70 new flights at Dallas-Fort Worth, evenly divided between the flagship line and American Eagle.

In its overhaul, Delta will simplify the number of plane types in its fleet; smooth out peak hours at its Atlanta hub through schedule changes; trim management overhead by 15 percent; and force employees to take undetermined cuts in wages and health benefits.

All told, the changes aim to carve $2.6 billion from Delta's annual cost structure, a target that consultant Jon Ash of Global Aviation Associates in Washington, D.C., said could be reached.

Grinstein is "doing the things that you simply have to do to survive as a legacy carrier," Ash said. "More than likely, he'll be successful."

But bankruptcy remains a real threat. Delta's most senior pilots are retiring quickly to preserve their pension benefits, which appear at risk if Delta files or renegotiates the pensions.

Grinstein dubbed his four-point turnaround "ACES":

Achieve viability. Delta will cut debt and costs to stay out of bankruptcy.

Create a customer-focused culture. The airline will invest in a better flight experience, including more technology for customers.

Excel at operational performance. By assigning crews more efficiently and smoothing out the schedule in Atlanta, Delta hopes to improve on-time performance.

Sustain profitable growth. The carrier hopes to remake itself to survive in the long term.

The linchpin of Delta's transformation remains getting $1 billion in annual give-backs from its unionized pilot groups. Talks continue, but time is running out, Grinstein said.

"If [the] pilot early-retirement issue is not resolved before the end of this month, or if all the other pieces don't come together in the near term, we will be required to restructure through the courts," he said.

Delta's shares tumbled 44 cents, or 9.8 percent, to close at $4.04 yesterday.

The Associated Press and Bloomberg News contributed to this article.

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