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Delta to slash up to 7,000 jobs

By Eric Torbenson
The Dallas Morning News

Delta Air Lines CEO Gerald Grinstein

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DALLAS — Delta Air Lines unveiled changes yesterday that will remake its business, but officials warned that soaring costs still could land the nation's third-largest carrier carrier in bankruptcy court.

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

Delta will slash 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.

Delta Chief Executive Gerald Grinstein said he engineered the plan to respond to a new travel landscape that's 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," Grinstein said yesterday in announcing the changes. "What we're doing is building the right airline for the era."

The most dramatic 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.

Biggest job cuts by U.S. airlines Following are some of the largest job cuts announced by U.S. airlines since Sept. 11, 2001: September 2004: Delta Air Lines says it will cut 6,000 to 7,000 jobs and drop Dallas/Fort Worth as a hub as it tries to avert bankruptcy. March 2003: Northwest Airlines says it will cut 4,900 jobs because of lower travel demand due to military action in Iraq. January 2003: American Airlines says it will trim more than 800 flight-attendant jobs to slash costs. November 2002: US Airways says it will furlough 2,500 workers as it searches for new ways to shrink its heavy cost load. November 2002: United Airlines says it expects 9,000 more job cuts as it tries to avoid bankruptcy. September 2001: United Airlines says it will slash about 20,000 jobs, or about 20 percent of its work force. September 2001: American Airlines says it will lay off at least 20,000 people at its American, American Eagle and TWA units. September 2001: US Airways says it will reduce its capacity by 23 percent and lay off about 11,000 employees, more than 25 percent of its work force. September 2001: Northwest Airlines says it will cut about 10,000 jobs, 19 percent of its work force, and permanently reduce its flight schedule by about 20 percent. September 2001: Delta Air Lines says it will cut 13,000 jobs and reduce its flight schedule 15 percent. Source: Reuters

The carrier made money at Dallas/Fort Worth 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.

The carrier has three other hubs in Atlanta, Cincinnati and Salt Lake City and ranks sixth among airlines flying into Sea-Tac International Airport, with 3,438 landings this year through July, according to Port of Seattle figures.

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

Six weeks ago Delta said it would delay the delivery of 10 Boeing jets and cancel 113 options as part of a plan to cut capital spending by nearly $1 billion over two years.

All told, the sweeping changes unveiled yesterday aim to carve $2.6 billion from Delta's annual cost structure, a target 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 for bankruptcy reorganization or renegotiates the pensions.

Replacing each one costs tens of thousands of dollars in retraining because pilots who move up the seniority ladder often change aircraft types. Those training cycles take months.

"We could get in a situation where we'd have to ground one of our fleets" if the pilot retirement rate continues, Delta Executive Vice President Vicki Escarra said.

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 givebacks from its unionized pilot groups.

Talks continue between the sides, but time is running out, Grinstein said.

"If 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 pilot union said the retirement issue took them by surprise.

In a hotline update to members, the Air Line Pilots Association said retirement wasn't an issue as long as the airline didn't try to take away retirement benefits.

"It is unfortunate that our management has chosen a Webcast environment to deliver this ultimatum," said Chris Renkel, the chapter's communications chairman, in the recorded message.

The biggest surprise in Grinstein's plan was an expansion of Song, Delta's low-fare carrier, which will gain 12 aircraft.

Grinstein, president of the University of Washington Board of Regents, moved from Delta's board of directors to the CEO's office late last year.

He had previously dismissed Song's prospects but changed his mind over time.

"They told me that they're using Song as a vehicle to learn," said Ray Neidl, an analyst for Calyon Securities, who had figured Song to be gone in Delta's future.

Neidl gives Delta a one-in-three chance of still filing for bankruptcy.

But some other analysts didn't think Delta's plan will prevent insolvency in the short term.

Delta's bankruptcy chances are now two in three, up from 50-50 before yesterday, said Jim Higgins of Credit Suisse First Boston in a research note yesterday.

Shares in Delta fell 44 cents yesterday to close at $4.04.

Seattle Times business staff and Dallas Morning News reporters Ieva Augstums and Suzanne Marta contributed to this report.

Employee sues Delta over pension plan

Delta Air Lines was sued by an employee who claims the company pension plan lost hundreds of millions of dollars because it invested in the airline's stock.

Dennis Smith seeks court permission to represent all affected Delta employees in his suit, which was filed Friday in federal court in Atlanta.

Since November 2000, Delta's stock has dropped 92 percent, he said in the suit.

The suit, brought under the federal Employee Retirement Security Income Act, is similar to pension litigation filed against some bankrupt companies, such as Enron and WorldCom.

— Bloomberg News

Copyright © 2004 The Seattle Times Company

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