All Delta Air Lines Inc. employees need to sacrifice to help the bankrupt company survive, and its pilots should be no exception, a lawyer for the nation’s third-largest carrier told a three-member panel of arbitrators Monday.
Jack Gallagher asked the arbitrators to throw out the collective bargaining agreement of Delta’s 6,000 pilots so the Atlanta-based airline can impose up to $325 million in long-term pay and benefit cuts. He also told the panel “it now looks more likely than not” that the pilots’ defined benefit pension plan will be terminated.
“If Delta’s cash runs out, its fate is out of its hands,” Gallagher told the panel gathered at a downtown Washington hotel for the start of two weeks of hearings. Delta’s chief executive, Gerald Grinstein, was among those in attendance.
The pilots union has said it will strike if its contract is voided. A strike would put the airline out of business, the company has said.
“We didn’t start this war, and how we choose to deal with it is quite frankly none of Delta’s business,” union lawyer Bruce Simon said in his opening statement to the panel.
The airline, which filed for Chapter 11 protection from its creditors in New York in September, had asked the bankruptcy court in November to void the pilot contract, but shortly before a judge was set to issue a decision, the company and its pilots reached a deal on interim pay cuts.
That deal, equal to a little less than half of what the company is seeking on an annual basis, would be replaced by the long-term deal the two sides have been negotiating since December. They missed a March 1 deadline to settle on their own, sending the matter to arbitration.
In his opening statement to the panel, Gallagher noted that Delta has already imposed cost cuts on its other major employee groups — including executives — who are not represented by a union. He said the pilots union needs to step up to the plate for a second time and give the airline the cuts it needs. If it doesn’t, he said, the only option is to reject the pilot contract.
“It takes time to turn around an operation this large,” Gallagher said. “But the reality is, Delta has to turn around its financial performance very soon and very dramatically if it is to survive.”
Gallagher said the airline has offered the pilots a $330 million note if the pilots’ pension is terminated. The pilots have asked for a $1 billion note.
But Simon told the panel that the company’s effort to throw out the pilot contract would undo good faith negotiations between the two sides. He also noted that some former top Delta executives were given huge pay and severance packages, and some were given bankruptcy-proof protections for their pension.
“If that was a sin, and yes we think it was a sin, it occurred well after 2000,” Simon said. “Was that really an old management? A member of the board during that time was Jerry Grinstein. In fact, he was a member of the board’s compensation committee.”
He called large pay cuts taken by Grinstein and other top executives over the last 18 months “too little, too late.”
Grinstein told reporters outside the hearing that Delta’s financial situation is precarious.
“It’s a race against time — these companies in bankruptcy are very fragile,” Grinstein said.
The airline has lost about $12.6 billion since January 2001, the year that the downturn in the industry started with the terrorist attacks on Washington and New York.
Nothing prevents Delta and its pilots from continuing to talk during the hearings, though the company and union concede they are far apart. Both sides agreed to binding arbitration, according to court papers, but the pilots union has asserted that it believes it would still be allowed to strike if its contract is voided. The company says a strike would be illegal.
“It’s a terrible situation at best,” the chairman of the union’s executive committee, Lee Moak, told reporters outside the hearing.
In the latest proposals, the company has agreed to reduce its request to $305 million in cuts annually, while the union said it is offering $140 million annually.
The pilots, in late 2004, agreed to a five-year deal that cut pay and benefits then by $1 billion annually. It included an immediate 32.5 percent pay cut.
According to the company, the average salary of pilots last year who worked the full year was more than $157,000.