Delta to cut as many as 9,000 jobs in bankruptcy

Lynne Marek

Thursday, Sept. 22, 2005 | 9:47 a.m.

Delta Air Lines Inc., the third-largest U.S. carrier, said it will cut as many as 9,000 jobs and reduce employee and executive pay as part of an effort to get out of bankruptcy and return to profitability.

The plan will reduce costs and boost revenue by $3 billion annually by the end of 2007, on top of $5 billion already targeted for next year, the Atlanta-based airline said in a statement today. The company will cut pay for most workers by between 7 percent and 10 percent and reduce Chief Executive Gerald Grinstein's compensation by 25 percent.

Delta is eliminating 17 percent of its workforce one year after deciding to cut as many as 7,000 jobs as it tried to head off a bankruptcy. Soaring fuel costs and competition from discount carriers such as Southwest Airlines Co. forced Delta and Northwest Airlines Corp. to file for bankruptcy last week.

"It's about time they got aggressive," Helane Becker, a securities analyst with Benchmark Co. in New York, said in an e- mail. "Had they done this last year, or 18 months ago even, they wouldn't be in Chapter 11."

The airline, which has posted losses of almost $10 billion in the past four years, said it's seeking $325 million in annual wage and benefit reductions from its pilots on top of previous concessions. Of about $930 million in annual labor cost cuts the company is targeting, $605 million will come from other workers, including managers.

Grinstein's salary this year was reduced to $450,000 annually from the $500,000 he was promised when he took the job, and last year he only took half his pay. Top executives other than Grinstein will take 15 percent pay cuts.

Employees who make less than $25,000 a year will be excluded from the latest round of pay reductions, Delta said. The company began telling workers about its plans this morning, said Delta spokesman Anthony Black. Grinstein said he expects Delta to be profitable in just over two years.

"Our transformation will be sweeping and fast-paced," Grinstein, 73, said in the statement. "It must be if we are to survive and thrive as a stand-alone company in control of our own destiny."

Delta's pilots last year provided $1 billion in annual concessions over five years as part of a turnaround plan developed by Grinstein in his first year leading Delta.

Delta's 10 percent note that matures in 2008 rose about 1.5 cents on the dollar to 17.75 cents on Trace, the bond-price reporting system of NASD. Delta shares rose 2 cents to 80 cents at 10:41 a.m. in New York Stock Exchange composite trading.

Changes in Delta's route network will help lower costs and increase revenue by $1.1 billion annually, the airline said.

Delta, which has about 2,000 flights a day, expects to save $970 million annually from debt relief, lease and facility cost reductions and changes in its fleet. The airline said it will speed up the previous plan to eliminate four of its current 11 plane types, which will reduce training and maintenance costs.

The airline has already rejected leases for 40 planes that had been retired and plans to cut another 80 planes from its fleet by the end of next year. Delta's fleet included 550 planes at the main airline, and 168 at the company's Comair commuter unit as of Aug. 31, Black said.

Delta has come under pricing pressure from discount airlines, such as AirTran Holdings Inc. and JetBlue Airways Corp., expanding in its key East Coast market niche.

Delta will reduce its U.S. flight capacity, measured as the miles that available seats are carried, by 15 percent to 20 percent, and will increase international capacity, which has been more profitable, 25 percent by next year, the company said.

The price of jet fuel, the second-biggest cost for airlines after labor, has jumped 81 percent this year, pushed up recently by Hurricane Katrina's destruction of fuel production and distribution equipment.