Judge questions stock buyback

NEW YORK - Delta Air Lines Inc., which lost $2.6 billion in the first nine months of this year, needs the $3 billion in annual cost savings from its reorganization plan to survive, Chief Financial Officer Edward Bastian told a bankruptcy court Monday.

But U.S. Bankruptcy Court Judge Prudence Carter Beatty said Delta may have been wrong to spend $2.4 billion to buy back its own shares.

"It is a question of if you had that money rather than had spent it that way, you might not be in the position you are in," she said.

She added that the buyback might have been undertaken to placate Wall Street's financial community.

"I'm buying something worth nothing to me in order to make stock market price look good," she said.

"In my opinion it (the cost reduction plan) is absolutely necessary," Mr. Bastian told the court during the third day of a hearing on a Delta request to void its contract with pilots and impose $325 million in wage cuts.

"We are losing cash at a fairly alarming rate. If we don't stop losing cash, we won't make it," he said.

The Air Line Pilots Association, the union representing the pilots, has offered $90.7 million in concessions and has threatened a strike if the court grants Delta's request.

Uniformed pilots were at the courthouse Monday, as they were in earlier sessions dealing with the contract. Monday's session was a resumption of a hearing recessed Nov. 17.

Atlanta-based Delta is seeking cuts from its pilots to help offset rising fuel costs and the impact of stiff competition from low-fare competitors.

If the court approves Delta's proposed cuts, they would be on top of $1 billion in annual concessions the pilots agreed to in a five-year deal reached in 2004. That deal included a 32.5 percent pay cut and has been held up by the union as a sign of their willingness to negotiate.

Delta, which filed for Chapter 11 on Sept. 14, has recorded losses of more than $11 billion since January 2001 and has announced it would cut up to 33,000 jobs.

Delta's CFO said the airline's debtor-in-posession lenders were "very, very nervous" about the possibility of future jumps in fuel costs. These lenders agreed with the airline's belief that labor cost reductions are needed to "eliminate cash bleeding," he said.

Mr. Bastian said the airline is also trying to cut costs by renegotiating aircraft leases, but its employment costs are hobbling its ability to compete.