updated 10/28/2004 9:52:39 AM ET 2004-10-28T13:52:39

Delta Air Lines Inc. took a giant step away from bankruptcy with a tentative agreement on $1 billion in contract concessions from its pilots that includes a 32.5 percent wage cut effective Dec. 1 and no raises for the rest of the five-year pact.

The proposal reached Wednesday was being reviewed by the pilots’ union. The deal came after 15 months of negotiations that have intensified in recent days, said Karen Miller, spokeswoman for the Air Line Pilots Association.

Chris Renkel, a spokesman for Delta’s Master Executive Council, a branch of the union, said the tentative agreement with management came late Wednesday afternoon.

During the next two weeks, union members will be given details about the proposed agreement. The pilots will vote on the plan beginning Nov. 1 until Nov. 11, said Master Executive Council Chairman John Malone in a memo released Thursday by the pilots’ union.

“Let me say from the outset that it pained me to see such drastic changes made to almost every section of our contract; they are significant and will affect each of us and our families,” Malone wrote. “However, your union and our economic experts were convinced that immediate relief was necessary to prevent a bankruptcy filing in light of the company’s economic condition.”

Malone’s memo says the deal does include the $1 billion in concessions that Delta said it needed from its 7,000 pilots.

Atlanta-based Delta, the nation’s third-largest airline, was expected to decide Wednesday whether to seek Chapter 11 protection from creditors. It said that could be delayed if an agreement was reached with ALPA. A company spokeswoman said Wednesday night no decision had been made, and declined to elaborate on the company’s plans. There was no further comment from Delta Thursday morning and the company has yet to discuss the negotiations or even confirm a deal has been reached.

Malone’s memo says while there are no guarantees the airline will not file bankruptcy at some point, he hopes the agreement will “buy Delta additional time” to continue out-of-court restructuring efforts. He called the tentative agreement “our best alternative.”

Tuesday was Delta’s self-imposed deadline for debtholders to respond early to an exchange offer meant to give the airline breathing room. The deadline came and went without word from Delta on its progress.

The company had offered to exchange $680 million of its debt with new notes secured by $1.2 billion worth of debt-free aircraft, flight simulators and flight training equipment. The offer was made to holders of $2.6 billion in various forms of Delta debt.

Earlier this month, Delta extended a debt exchange offer to Nov. 18, but said it would give some creditors a better deal if they agreed to the terms by Tuesday. There was no word about what the creditors’ response has been to the offer.

Delta has warned that its debt could force it into bankruptcy, even if its unions agree to sizable concessions.

Before the deal was reached, the pilots had publicly offered up to $705 million in savings and had not released details of subsequent offers. In a regulatory filing earlier this month, Delta had said that to date the union’s “counterproposals have been for substantially less than $1 billion.” The company also had said in the filing that the union was seeking a stock option program that involves “substantially more equity” than management’s proposal.

Delta has lost more than $6 billion since 2001, during which time it has also cut 16,000 jobs. Delta plans to cut up to another 7,000 jobs in the next 18 months. Last week, the struggling airline reported a $651 million loss in the third-quarter.

The contract with the pilots was adopted just a few months before the Sept. 11, 2001, terrorist attacks. The contract put Delta pilot pay roughly on par with that of pilots at United, who have since agreed to steep cuts as that carrier reorganizes under bankruptcy court protection.

Delta had roughly 7,100 active pilots and 809 more on furlough earlier this month, Miller said. There were 10,000 pilots at Delta at the time of the terrorist attacks.

The company staved off a bankruptcy filing at the end of September when it reached a deal to allow the company to recall early retired pilots on a limited basis to help ease staffing shortages. Since Jan. 1, 625 pilots have retired, 505 of them before the normal retirement age of 60, according to the union.

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