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Delta must cut wages to stem losses, exec says

Delta Air Lines Inc. is losing $5 million each day, much of it due to high jet fuel prices, as it tries to stay afloat, the company’s chief financial officer testified in bankruptcy court Thursday.
/ Source: The Associated Press

Delta Air Lines Inc. needs to cut pilots’ pay and benefits because it is losing $5 million each day, much of it due to high jet fuel prices, even as it works to stay afloat, the company’s chief financial officer testified at a bankruptcy court hearing Thursday.

Delta CFO Edward Bastian said the company’s cash flow would break even for 2006 and generate $1 billion in 2007, but he argued that the airline would need to impose deep wage and benefit cuts on more than 6,000 pilots to fight volatile fuel prices, pay down debt and hedge against other unforeseen circumstances.

“Historically, the surprises that have come in this industry have been negative and not positive,” Bastian said during the second day of a hearing on a Delta request to void its contract with pilots and impose wage cuts. The hearing was adjourned in late afternoon and will resume Nov. 28.

The pilots union, the Air Line Pilots Association, has threatened a strike if U.S. Bankruptcy Court Judge Prudence Carter Beatty grants Delta’s request, though the company maintains a walkout would violate the Railway Labor Act.

It is widely expected that Beatty will ask the two sides to try to reach a deal on wage concessions. Bastian told The Associated Press outside the courtroom he believes the airline could reach an agreement with its pilots and does not believe the ALPA would strike, but he said such a labor action would be devastating to the airline.

“I have not heard that (strike talk) directly. We don’t think it would be legal,” Bastian said. “If that were to happen it would be devastating.”

Bastian added: “We strongly believe a consensual agreement will be reached.”

Asked if the airline has been approached by another carrier — either domestic or overseas airline company — with a merger or acquisition offer, Bastian said, “This is not the time to be talking about that. Delta has to fix its own problems.”

Delta currently has $1.4 billion in available cash on hand, but expects to lose $5 million each day from its usual operations over the next 90 days, Bastian said. Delta has an additional $1.2 billion in cash in the bank, but cannot use the money because the airline’s contracts with its credit card processor and workers compensation insurance provider require Delta to keep cash on hand as collateral due to its deteriorating financial situation.

The company still contemplates another 7,000 to 9,000 non-union layoffs as part of its $5 billion restructuring plan, though none of those were to be pilot jobs. The plan does contemplate a 19.5 percent cut in wages for pilots, however, which the union has fought and which the court must approve.

During Thursday’s testimony, Beatty questioned some of Delta’s most recent decisions, including the recent shutdown of its Song low-cost carrier business. However, Bastian said the company is not completely abandoning Song.

“Song has been very successful. We’re adopting its practices across the airline. It was a great experiment,” he said, adding that the Song carrier service is something the overall carrier can be converted to.

Beatty also said the airline may have miscalculated how it accounts for expenses related to its pilots’ pensions. “Somebody from Delta’s side never added up what it will cost to pay pilot pensions. It is ultimately these numbers which are going to kill you,” Beatty said.

Faced with rising fuel costs and stiff competition from low-fare competitors, Delta is seeking to slash $325 million from its collective bargaining agreement with its pilots. The ALPA has offered $90.7 million in concessions.

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 over that period has announced it would cut up to 33,000 jobs. Its loss in the third quarter was $1.13 billion.