Delta near deals for $1 billion in financing

32.5% pay cut for pilots goes into effect today

December 01, 2004|By COX NEWS SERVICE

ATLANTA -- Delta Air Lines is close to completing two deals that would provide up to $1 billion in financing, just as it begins phasing in $1 billion in pilot concessions, another key part of its rescue package.

Analysts say the financing deals with General Electric Co. and American Express Co., which could be sealed today, are the final pieces in Delta's efforts to avoid a possible bankruptcy filing.

Coupled with a recent pilot contract deal cutting $1 billion in annual costs and strategic changes planned this winter, analysts say, the cash infusions will give Delta several months to start showing progress.

"They've probably bought themselves another 12 months" unless another rise in oil prices ravages Delta's cost-reduction efforts, said Ray Neidl, an industry analyst with Calyon Securities.

Over the short term, Neidl said, most of Delta's relief will come from a 32.5 percent pay cut for pilots that takes effect today. Delta also will cut nonpilot pay by 10 percent starting in January and plans to cut up to 6,900 jobs.

Industry analysts estimate that Delta will save more than $50 million a month from pilot pay cuts and about half that amount from the other employee pay and job reductions.

About 175 pilots were expected to take early retirement today in anticipation of the pay cuts and other concessions that take effect in coming months. They include reduced pension benefits and longer hours for pilots.

Other changes that begin immediately will allow Delta to furlough pilots more easily, lower its training costs by requiring pilots to stay in the same jobs longer and pay less when pilots fill in for absent colleagues.

Starting in January, Delta will also be able to boost pilots' work hours by up to 9 percent, to 82 hours a month. But other parts of Delta's sweeping overhaul of its pilots labor contract, including a more efficient scheduling system, won't go into effect until next summer.

"As you can see, there will be significant changes implemented over the coming months, not the least of which is a 32.5 percent pay cut," said Karen Miller, a spokeswoman for the pilots union. "That alone will impact all pilots and their families."

Analysts say Delta faces a much longer and rougher road to completing its other turnaround plans. In September, Delta said it hoped to lop $5 billion from its annual operating expenses by 2006 by closing its Dallas hub and revamping its Atlanta hub and other operations.

To help ward off competition from discount carriers such as JetBlue and AirTran, Delta is also expanding its discount unit, Song, adding international and domestic flights, refurbishing plane interiors and trying out a simpler fare structure.

Still, UBS Securities analyst Robert Ashcroft predicted that Delta will be hobbled by extra capacity, higher pension costs, aircraft leases and other expenses that it could have more easily gotten rid of in bankruptcy court.

"As hard as [Delta] management worked this autumn to stave off Chapter 11, it must work harder still this winter-spring to successfully restructure the company in the breathing space it has won," he said in a report.

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