Delta Air Lines said it will eliminate as many as 9,000 jobs and reduce employee and executive pay in the first extensive plan detailing...
Delta Air Lines said it will eliminate as many as 9,000 jobs and reduce employee and executive pay in the first extensive plan detailing how the company expects to get out of bankruptcy.
Pay for most workers will be reduced by 7 to 10 percent, and Chief Executive Gerald Grinstein will take a 25 percent pay cut, Delta said in a statement yesterday. The plan will reduce costs and boost productivity, by adding profitable international flights among other steps, to save $3 billion annually by the end of 2007, the company said.
Delta is eliminating 17 percent of its work force one year after deciding to cut as many as 7,000 jobs. Soaring fuel costs and competition from discount carriers such as Southwest Airlines forced Delta and Northwest Airlines to file for bankruptcy last week.
“It’s about time they got aggressive,” Helane Becker, a securities analyst with Benchmark in New York, said in an e-mail. “Had they done this last year, or 18 months ago even, they wouldn’t be in Chapter 11.”
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Delta will reduce its U.S. flight capacity, measured as the miles that available seats are carried, by 15 to 20 percent, and will increase international capacity by 25 percent by next year.
The latest plan comes in addition to $5 billion in cost reductions and revenue increases the company was targeting for next year. Delta’s pilots in 2004 provided $1 billion in annual concessions over five years as part of a turnaround plan developed by Grinstein in his first year leading Delta.
The airline, which has posted losses of almost $10 billion in the past four years, said it’s seeking $325 million in annual wage and benefit reductions from its pilots on top of previous concessions. Of about $930 million in annual labor cost cuts the company is targeting, $605 million will come from other workers, including managers.
Grinstein’s salary this year was reduced to $450,000 annually from the $500,000 he was promised when he took the job, and last year he only took half his pay. Top executives other than Grinstein will take 15 percent pay cuts.
Employees who make less than $25,000 a year will be excluded from the latest round of pay reductions, Delta said. The company began telling workers about its plans yesterday morning, said Delta spokesman Anthony Black.
Grinstein said he expects to be a “smaller, more cost-efficient airline” producing profits in just over two years. The company said it will share profits with employees in the future.
Delta is also trying to defer contributions to its employee pension funds by lobbying for changes to U.S. law. The company has $3.15 billion due to the funds over the next two years. Rivals United Airlines and US Airways terminated their pension plans in bankruptcy, shifting the burden to a federal insurer and adding to employee-compensation losses.
“I would expect, eventually, they will have to terminate the pension plan,” New York-based Standard & Poor’s analyst Philip Baggaley said, referring to Delta executives.
Delta, which has about 2,000 flights a day, expects changes to its route network to help lower costs and increase revenue by $1.1 billion annually. The carrier expects to save $970 million annually from debt relief, lease and facility cost reductions and changes in its fleet. That includes training and maintenance savings that will result from speeding up a previous plan to eliminate four of its current 11 plane types.
The airline has already rejected leases for 40 planes that had been retired and plans to cut another 80 planes from its fleet by the end of next year. Delta’s fleet included 550 planes at the main airline, and 168 at the company’s Comair commuter unit as of Aug. 31, Black said.
“As you shrink an airline, you also reduce your revenue-generating ability,” Baggaley said. “Obviously, they’ll try to shrink the unprofitable markets.”
Delta’s efforts to reduce costs have been hampered by a jump in the price of fuel, which is up 81 percent this year, pushed recently by Hurricane Katrina’s destruction of refineries and pipelines.