"Billion-Dollar Ball in Delta Pilots' Hands"

Friday, October 29, 2004

Billion-Dollar Ball in Delta Pilots' Hands
By MICHELINE MAYNARD
The New York (NY) Times


Delta Air Lines' pilots, by far the best paid in the airline industry, face
a painful choice over the next couple of weeks: accept a tentative deal that
calls for a one-third cut in pay, or reject it and risk losing their jobs if
Delta goes into bankruptcy and falters.

If the pilots approve the concession deal, reached late Wednesday, they will
be declaring a formal end to an era of high salaries in the airline
industry. The industry, which once offered some of the most elite jobs in
the American economy, has been wounded by high fuel costs even as stiff
competition from low-fare airlines has prevented companies from raising
prices to cover their costs.

Among major airlines, Delta is the only one that has not been able to reduce
its labor costs, in bankruptcy or out of it. Yet neither side is pretending
the deal alone will save Delta from bankruptcy.

It is "one very important and necessary piece of a very complex puzzle,"
Delta's chief executive, Gerald A. Grinstein, said yesterday in a memo to
employees. "Make no doubt about it, due to Delta's precarious financial
situation, many uncertainties remain."

In his own message to pilots, John J. Malone, the chairman of the Delta
chapter of the Air Line Pilots Association, described the deal as protection
in case the airline files for Chapter 11 bankruptcy protection.

The agreement "will hopefully buy Delta additional time" to continue its
restructuring efforts outside bankruptcy court, Mr. Malone said.

If Delta cannot avoid a bankruptcy filing, three of the industry's six major
companies would be under bankruptcy protection, with the three others -
American, Continental and Northwest - in questionable financial shape.

"This is not a picnic," said Robert B. Reich, the former labor secretary,
who is now a professor of social and economic policy at Brandeis University.
"This is very, very difficult for people to deal with."

Given the dire circumstances, Mr. Grinstein did not waver from his demand
for cuts worth $1 billion, rather than compromise on the $705 million
offered by the pilots.

As a result, Mr. Grinstein, who has been in place since January, potentially
passes his first significant test by reaching the tentative deal, which
includes provisions that the pilots long resisted as far too harsh.

Delta's stock, which climbed this week on rumors of a deal with the pilots,
rose another 16 percent yesterday to close at $5.72.

The plan gave pilots something they insisted upon, too: the chance to buy
shares that would give them a 15 percent stake in Delta, though they did not
get the board seat they wanted.

But that is the only bright spot for the pilots, who will vote on the plan
starting on Monday, with results expected on Nov. 11. It includes a 32.5
percent pay cut, starting Dec. 1. Salaries at Delta, which top out at
$287,000 for the most experienced pilots, will be frozen for the next five
years. The airline's pension plan will also be frozen; future contributions
will be made through a 401 (k) plan.

Yet Delta pilots, who have never been asked to take such cuts before, can
see from the example set by the industry's bankrupt players that things
could be much worse.

United, whose pilots' pay has already been cut 25 percent in its two years
in bankruptcy, plans to outline plans next month for another round of cuts.

This month, US Airways' pilots approved their third round of concessions in
two years, including pay cuts of 18 percent over the next five years.

By reaching a tentative deal, Delta's pilots followed the guidance of their
national union, which has repeatedly counseled members that it is wiser to
reach settlements with the companies before the airlines file for
bankruptcy.

"Once you get into bankruptcy court, you lose all control over your
destiny," said John Mazor, a spokesman for the Air Line Pilots Association.

The talks that culminated in the Delta deal, in fact, were held at the
union's national headquarters, which analysts said was a reflection of the
high priority that the pilots' group placed on the negotiations.

The agreement followed 18 months of discussions between the airline and the
union, with Mr. Grinstein playing an active role since becoming chief
executive. On Wednesday, with a deadline set by Delta looming, Mr. Grinstein
phoned Mr.
Malone from Atlanta, asking for a yes or no answer to Delta's final offer.

Unless pilots agreed to the deal, Delta's board was prepared to approve a
Chapter 11 filing at its meeting yesterday, people inside the airline said.
Facing that ultimatum, leaders of the pilots' union accepted the company's
offer.

Delta had applied increasing pressure on the union in the last few days,
both at the bargaining table and in its financial dealings. On Friday, Delta
officials said the airline was ready to seek bankruptcy protection by the
middle of this week if a deal did not happen, the first time it had
disclosed its deadline.

This week, Delta lined up a series of agreements, including a $600 million
arrangement with American Express Travel Related Services, which hinged on a
deal with the pilots.

Less formally, the pilots also faced pressure from within their profession.
Over the years, pilots at other airlines had watched enviously as Delta
pilots kept their contract intact, while counterparts at American,
Northwest, US Airways and United all granted concessions.


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