Originally created 09/23/05

Delta's turnaround moving fast



ATLANTA - A mere eight days out of the bankruptcy gate, Delta Air Lines Inc. signaled Thursday it wants to move quickly to restructure its costs as it announced it will cut up to 9,000 more jobs, slash pay for executives and other employees and cut domestic capacity while adding more international flying.

The changes were not a surprise following Delta's Sept. 14 Chapter 11 filing in New York, but the speed in putting them forth was, said airline analyst Ray Neidl at Calyon Securities.

"It shows that they're determined to turn this airline around," Neidl said.

That won't happen without pain for many employees who stuck with the nation's third-biggest carrier through nearly $10 billion in losses and earlier rounds of cuts that shed 24,000 jobs since 2001. The job cuts announced Thursday, which will be phased in over more than a year, represent 17 percent of the work force at Delta's flagship service.

The Atlanta-based airline's chief executive, Gerald Grinstein, said in a memo to employees that the changes could prompt some of them to leave the company.

"Delta people understandably must make career decisions based on their own best interests and personal circumstances," Grinstein wrote. "For those who leave the company either through choice or by the plan's requirements, I hope you know how much your service has been appreciated."

To those who stay, Grinstein said Delta "needs every ounce of your proven professionalism."

The changes are part of Delta's effort to save an additional $3 billion annually by the end of 2007. That's on top of $5 billion Delta had previously said it wanted to save by the end of 2006.

Grinstein will lose 25 percent of his $450,000 salary, and all other executives will take a 15 percent pay cut.

The 7,000 to 9,000 job cuts will come from the 52,000 people employed at Delta's flagship airline and not at any of its affiliated airlines, spokeswoman Chris Kelly said. It hasn't been determined yet exactly how many of those cuts will come in Georgia, but it could be up to 25 percent, Delta's chief financial officer, Edward Bastian, told state lawmakers Thursday.

The reaction from employees has been somber, Bastian said, but he noted that "it's been understood that this is a battle for survival, not a management discretion."

Delta and its subsidiaries listed in regulatory filings 65,300 employees as of June 30, but that figure included recently sold feeder carrier Atlantic Southeast Airlines. It was not immediately clear how many employees Delta and its 18 subsidiaries, including discount carrier Song and feeder carrier Comair, currently have.

The new cuts come eight days after Delta filed for bankruptcy protection in New York. No. 4 U.S. carrier Northwest Airlines Corp. filed for Chapter 11 later the same day. On Wednesday, Northwest said it will lay off 1,400 flight attendants by January.

Delta's Grinstein said his company's effort will protect Delta from the threats posed by its competitors and make the company profitable in just over two years.

Among the highlights of the plan:

-In the bankruptcy case, Delta's goal is to save $970 million annually through debt relief, lease and facility savings and fleet changes. The company has already rejected leases on 40 mainline aircraft and plans to cut its mainline fleet by another 80-plus aircraft by the end of 2006.

-Another $1.1 billion in annual savings is expected to be gained through changes to Delta's route network. It will reduce domestic mainline capacity by 15 percent to 20 percent; At the same time, it will increase international capacity by 25 percent in 2006 to pursue more profitable routes.

-Roughly $930 million in annual savings will be gained through reduced employment costs, employee productivity improvements and overhead reductions. The total includes savings of $325 million from Delta pilots and $605 million from the non-pilot work force, including management. The pilot reductions would have to be agreed to by the pilot union or imposed on the union in bankruptcy court. The union agreed to $1 billion in annual concessions a year ago.

The chairman of the pilot union's executive committee, John Malone, said Thursday in an interview during a break from testimony before Georgia lawmakers that the union has not decided yet whether it will accept the new cuts Delta is asking for. Malone did say that the union has discussed the issue.

Malone said that while the mood among pilots is somber, he is confident they will continue to do their jobs.

"The pilots understand. It's a critical time period," Malone said.

Besides the pay cuts for executives, there also will be a 9 percent pay reduction for supervisory and other administrative personnel. Pay scales will be reduced 7 percent to 10 percent for most frontline employees, excluding those earning less than $25,000 annually.

An initial transformation plan announced a year ago, which included up to 7,000 job cuts and the shedding of the airline's Dallas hub, was hampered by the high price of jet fuel, something most airlines have had trouble overcoming.

On the Net:

Delta Air Lines Inc.: http://www.delta.com

Bankruptcy case: http://ecf.nysb.uscourts.gov