"Steep cuts for Delta staff"

Saturday, September 25, 2004

Steep cuts for Delta staff 
By Alexander Coolidge 
The Cincinnati (OH) Post


Delta Air Lines workers can expect to see their pay and benefits chopped 10
to 30 percent even as management moves ahead with plans to reduce the
workforce, experts say.

Delta officials are expected to unveil a reduced pay and benefits package
next week as part of a plan to save Greater Cincinnati's dominant airline.
Delta has lost billions over the past three years and says it might have to
file for Chapter 11 bankruptcy protection. 

Delta officials would not provide early details, but analysts say the only
certainty is that it's going to hurt. 

"For non-union workers, it's going to be pretty massive to make a
difference," predicted Richard Gritta, a professor of economics who tracks
the airline industry at the University of Portland (Ore.). 

He believes pay cuts could go as deep as 30 percent. 

It appears cuts in wages will need to be steep to achieve the savings Delta
officials say they need. 

Chief Executive Officer Gerald Grinstein two weeks ago unveiled part of his
plan to slash another $2.7 billion in operating expenses, which he said
would come on top of $2.3 billion already cut by the end of this year. Delta
management is trying to soften the blow by developing a profit-sharing and
company plan for workers, but Gritta said they will have to get enough
concessions from employees and other parties to turn around the airline in
order to make such new benefits worth anything. 

"Workers will have to be convinced it will make up for pay cuts -- it will
depend on how much faith they have in management," he said. 

The total cuts could run as high as 30 percent, said Michael Boyd, an
aviation consultant in Evergreen, Colo., but he added they would likely be a
combination of lower salaries, fewer benefits and stricter work rules. By
making the cuts include less overtime and higher health care co-pays, Delta
might only cut straight salaries in the range of 15 percent, he said. 

"They have to do something in that ballpark -- Grinstein's made it clear
they're in a crisis," he said. "They can't afford these labor costs anymore.
The industry has changed." 

Grinstein's plan called for yearly operating expenses to be $5 billion less
by 2006 than the nearly $15.2 billion in 2002. He said a pay cut and
increased employee contributions for health care benefits will be unveiled
by the end of this month and implemented later. 

Delta is trying to get at least $1 billion in concessions from its pilots
union, but so far the union has offered a maximum of $705 million. Even with
$1 billion in pilot concessions, the airline will still need to cut another
$1.7 billion. Those cuts will likely include renegotiating lower debt, lease
and aircraft payments, but some portion will have to come from non-pilot
employees. 

Delta will likely seek hundreds of millions in concessions from its
non-union workers, said Chris Lozier, an analyst with Morningstar in
Chicago. 

"There's a long way to go after the pilots -- it's a no-brainer," he said. 

Experts point to cuts made at other airlines that are still unprofitable and
mulling more employee reductions. Last year, bankrupt United Airlines
slashed $2.5 billion in worker pay, translating into double-digit reductions
in wages. In the same year, American Airlines cut pay packages 15 to 23
percent to save $1.8 billion and narrowly avoided filing bankruptcy. 

Beleaguered US Airways, which slashed its payroll during its first
bankruptcy, is seeking $800 million more in cuts in its second. 

Over the past four years, traditional airlines like Delta have been squeezed
by recession, terrorist attacks, the SARS outbreak, sky-high fuel prices and
aggressive competition from low-cost carriers. The sudden growth of low-cost
carriers has flooded the market with cheap airline tickets that have barred
major carriers from charging enough to reap a profit. 

Delta says it now competes with low-cost rivals on 70 percent of its routes
and insists the new era of competition is here to stay. The airline's only
choice is to cut costs, management says. 

Several strategic decisions outlined by Delta also indicate where the
airline will try to cut jobs. 

Earlier this month, Delta said it would "de-peak" arrivals and departures at
its Atlanta hub. Spreading out the arrival and departure of airplanes would
likely mean longer connection times for passengers between flights, but it
saves the airline money in two ways. 

By not having all flights come in a peak times at a hub, the airline doesn't
have planes taxiing around the runway or circling above to coordinate
arrivals with other aircraft -- that frees aircraft to make additional
flights and spreads out unit costs. 

Also, by spreading out the flow of incoming aircraft, the airline would need
fewer personnel on the ground to unload bags and carry out repairs. 

"That means better aircraft and pilot utilization and you need fewer baggage
handlers and gate agents," said Clint Oster, an aviation expert at Indiana
University. 

Delta also said it wants to boost the bookings on its Internet site to 50
percent by the end of next year. Experts say such a move would inevitably
lead to cutting some of Delta's 11 call centers, such as the one in
Cincinnati that employs 700. 

"That's an area ripe for consolidation," said Bill Warlick, an analyst with
Fitch Ratings in Chicago. 

The airline says it wants to expand further its use of technology by adding
check-in kiosks at 15 new cities on top of the 81 airports, including
Cincinnati, that already have them. The technology will enable the airline
to process more passengers with fewer ticket agents. 

Delta said this month it wants to retire four types of aircraft from its
fleet. Such changes would cut Delta's repair costs for less-efficient
aircraft and would likely trim maintenance jobs. 

The airline announced this month its plan to slash service at its
Dallas/Fort Worth hub, which analysts say could translate into 2,000 job
cuts alone.

   .  Delta has cut 16,000 jobs since the 9-11 terrorist attacks. 

   .  The company's annual payroll nevertheless increased 6.2 percent, or
$371 million, to more than $6.3 billion in 2003. 

   .  The airline lost $5.7 billion between 9-11 and this summer.

   .  Delta has cut 16,000 jobs since the 9-11 terrorist attacks. 

   .  The company's annual payroll nevertheless increased 6.2 percent, or
$371 million, to more than $6.3 billion in 2003. 

   .  The airline lost $5.7 billion between 9-11 and this summer.


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