For months, Delta Air Lines Inc. insisted its pilots concede to $325 million in pay and benefit cuts, and the company asked a bankruptcy court judge to help it impose its will.
The union voted last week to ask its members to authorize a strike, but Delta refused to budge. Then, suddenly, the two sides late Sunday inked a tentative deal on temporary pay cuts worth more than $152 million a year, less than half what the nation’s No. 3 carrier wanted.
While experts say Delta may ultimately get what it wants, for now it appears the airline’s pilots have a victory that has been a rarity at other major carriers who have used the bankruptcy court’s big stick to meet their goals.
“The pilots came out on top of this skirmish, but I’ve been around for a long time and I know who is going to win the war — Delta,” said Minneapolis airline expert Terry Trippler, who runs travel Web site cheapseats.com.
United Airlines, a unit of Elk Grove Village, Ill.-based UAL Corp., has used the leverage of federal bankruptcy law to extract not one but two rounds of hefty wage and benefit cuts from employees during its restructuring. It also succeeded in dumping their defined-benefit pension plans, replacing them with much less costly plans. During three years in Chapter 11, a judge has sided with the nation’s No. 2 carrier in almost every one of its labor-related requests.
At Eagan, Minn.-based Northwest Airlines Corp., pilots, flight attendants and ground workers are all working under temporary cuts, won under the nation’s No. 4 carrier’s threat that a bankruptcy judge might allow it to impose even harsher terms. That could still happen. Northwest is set to ask for permission on Jan. 17 to reject those union contracts, which would allow it to impose whatever terms it wants. All three groups have said they will try to make a deal with Northwest before then.
At Atlanta-based Delta, the pilots held their ground, longer than some experts thought they would.
They held a rally that gathered more than 800 pilots and their wives to protest the company’s effort to void the union contract. The union formed a strike preparedness committee, threatened repeatedly to strike if the contract was thrown out and ultimately voted to seek a strike authorization from members.
The tentative agreement, which followed meetings between the sides over the weekend brokered by United States Trustee Deirdre Martini in New York, includes a 14 percent across-the-board wage cut for pilots and reductions in other pilot pay and cost items equal to an additional 1 percent hourly wage reduction. Based on the pilots’ average annual salary of $169,393, the cuts would save Delta $152.5 million on an annual basis.
“The other airlines have not been making significant compromises,” said New York airline bankruptcy lawyer William Rochelle. “United Airlines certainly didn’t. It’s hard to imagine that Delta would cave, but who knows?”
Delta spokesman John Kennedy noted that the agreement is only an interim one, and management will still seek a more comprehensive deal by March, but he acknowledged that even the company felt the need for give and take.
Asked if the pilots won the battle, Kennedy responded, “The answer is this symbolizes the Delta spirit of people working together to resolve situations to save the company.”
He said if there are any winners with the temporary pact, it is the traveling public.
“This is good news for Delta’s customers as they can have full confidence that Delta will operate a full schedule without interruption throughout the holiday season,” Kennedy said.
Down the road, Delta could still get all of the concessions it wants from its pilots, said airline analyst Ray Neidl, who added that he believes it was the union not the company that saw the writing on the wall.
“They came to reality,” Neidl said of the pilots. “They’re going to negotiate the cuts that the company needs. It would have been suicidal for them to go on strike.”
Still, the pilots union isn’t conceding anything, and has vowed to keep its threat to strike in the background in case the two sides can’t reach a comprehensive deal and a third-party arbitration panel rejects the pilot contract.
Last year, Delta’s pilots agreed to $1 billion in average annual concessions, which included a 32.5 percent pay cut.
“All along, our biggest problem has been that the management team did not recognize that a 50 percent pay cut in a year and a termination of their pension plan ... if that wasn’t enough to be the tipping point, I don’t know what is,” said Lee Moak, chairman of the union’s executive committee. “So, I believe that they (Delta management) recognized that.”
Moak said the fate of the pilots’ pension plan remains a sticking point between the union and management. The union believes the company will move to terminate the plan based on Delta’s decision not to make contributions to the plan while in bankruptcy. Delta has not said what its plans are for the pension program.
“The pension is a serious problem,” Moak said.
Delta, which filed for bankruptcy protection on Sept. 14, and its pilots will ask a New York bankruptcy judge Tuesday to suspend the hearing on the company’s motion to reject the pilot contract. The tentative agreement must be approved by the court and Delta’s 6,000 pilots.