- Delta Air Lines will cut up to 7,000 jobs, reduce pay
for other workers and close its Dallas hub as part of an effort to slash
nearly $3 billion more in annual costs and chart a course toward financial
recovery.
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- Delta Chief Executive Gerald Grinstein rolled out the
Atlanta airline's much-awaited turnaround plan Wednesday at a meeting with
300 managers that was broadcast over the Internet.
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- He cast the plan as a forward-thinking effort to create
"the right airline for this new era" and touted service improvements
and smoother scheduling that are supposed to accompany the cutbacks.
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- But Grinstein for the first time also set a deadline
for a possible Chapter 11 filing, saying it could come at the end of this
month unless Delta stems a wave of early retirements by pilots that could
disrupt operations. Delta has been negotiating with pilots over contract
cuts and with creditors to restructure debts.
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- "We're working hard and fast to avoid it,"
Grinstein said of a trip to bankruptcy court, "but if the pilot early
retirement issue is not resolved before the end of the month, or if all
the pieces don't come together in the near term, we will have to restructure
through the courts."
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- The plan rolled out Wednesday plays into the effort to
avoid bankruptcy because both pilots and creditors have said they want
to know the airline's strategy for long-term recovery after three years
of deep losses.
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- Grinstein, a longtime board member, ordered a strategic
overhaul after becoming CEO in a top management shake-up last winter.
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- His call for new job cuts follows two previous waves
in the past three years that trimmed about 16,000 jobs. The company's total
head count has fallen only about 10,000 since mid-2001 because of hiring
at subsidiary regional carriers. Delta has 70,000 employees, including
32,000 based at the Atlanta hub.
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- The new plan includes cutting 6,000 to 7,000 jobs systemwide
over the next 18 months, although it isn't yet known where those cuts will
occur. It also calls for reducing pay and benefits "throughout the
company," and for closing Delta's connecting hub at Dallas-Fort Worth
International Airport, where daily flights will plummet from from 254 to
21 by Feb. 1.
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- The number of flights at Delta's other hubs in Atlanta,
Cincinnati and Salt Lake City will grow, however, and Grinstein said Delta
will revamp schedules to spread flights more evenly across the day.
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- Delta said it also will cut administrative overhead 15
percent, partly through "management reductions" to be announced
at the end of September.
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- The latter job cuts will hit Delta's Atlanta headquarters,
but those job losses will be partly offset as the Atlanta hub growth brings
extra flight crews, mechanics and other employees.
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- "Atlanta will probably feel less [job cuts] than
any other place, although it will probably see significant reductions at
the management level," Grinstein told reporters after his speech to
managers.
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- In addition to beefing up its remaining three hubs, Delta
also will add flights in key "focus cities" such as Boston and
Orlando.
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- In a minor surprise, Delta said it would expand its New
York-based Song operation from 36 aircraft to 48 starting next spring.
For the past year, Delta had put expansion plans at Song on hold.
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- "We've learned a lot from it," said Grinstein,
an early skeptic of the unit patterned after stylish rival JetBlue Airways.
"I was forced to rethink it."
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- Grinstein said he also plans to use some planes and crews
to beef up Delta's competitive position on some international routes and
seasonal flights to domestic vacation spots.
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- The worker cutbacks will be offset by a new incentive
pay program of bonuses and stock awards tied to company performance.
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- Delta spokesman Dan Lewis said the carrier will first
offer "very limited" incentives to employees to take voluntary
job cuts before announcing layoffs. The two previous waves of job cuts
were accomplished largely through voluntary exit offers.
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- Details of the latest exit incentives, pay cuts and higher
medical insurance premiums for nonunion workers will be announced later
this month.
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- Industry watchers gave Delta's plan mostly good reviews.
Still, some said it falls short of its billing, given that Grinstein had
promised it would take Delta into "previously uncharted airline territory."
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- "The sizzle might have been a little bit more than
the steak, but there's still a lot of meat there," said industry analyst
Ray Neidl.
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- "My calculator says it should be enough" to
turn Delta around, added Neidl, the Calyon Securities analyst who previously
estimated that Delta needs at least $2.3 billion in cost reductions to
become competitive with other carriers.
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- The new plan aims to save $2.7 billion in annual costs
on top of $2.3 billion in previous cost cuts. The new target includes expected
concessions from pilots and creditors, according to Delta.
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- The ultimate test, said Richard Bittenbender of Moody's
Investors Service is whether Delta's plan is convincing enough to win concession
agreements from pilots and creditors.
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- Success in both areas " winning deals with pilots
and creditors and successfully implementing the new strategy " could
convert Delta from losing $1 billion a year to posting profits of $1 billion
to $1.5 billion, he said.
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- But Wednesday's rollout did little to clarify the status
of negotiations with pilots and creditors.
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- "Our position remains the same, that we need more
information and due diligence before we can evaluate Delta's restructuring
plan," said Michael J. Reilly, an attorney who represents one group
of Delta creditors.
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- Air Line Pilots Association spokesman Chris Renkel said
Grinstein's announcement "would have no effect on the negotiations
to restructure the pilot agreement." The union has offered annual
wage and other cuts worth about $700 million, but Grinstein insists Delta
must get $1 billion.
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- Some industry watchers were perplexed by Grinstein's
injection of pilot early retirements into the equation. Grinstein said
Delta needs assurance that hundreds of pilots won't suddenly choose to
take early retirement by the end of the month, potentially grounding flights.
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- Higher-than-normal numbers have retired already this
year, taking advantage of a pension plan that allows them to take large
lump-sum payouts.
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- "That is a very, very serious issue," said
Grinstein. "We need to know what we're dealing with at the end of
the month."
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- Delta and its pilots union earlier this year agreed to
longer monthly work schedules and other moves to avoid understaffing.
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- The unpredictability of pilot retirements "makes
things operationally difficult," said Bittenbender, but are unlikely
to pitch Delta into insolvency.
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- Neidl said he thinks Grinstein is trying to turn up the
heat any way he can.
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- "I just thought he was drawing a line in the sand,"
Neidl said. "He needs a decision."
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- ALPA, in a statement, said it has told Delta in the past
that if it wants to slow the pace of retirements, it needs to assure pilots
that they can continue to cash out part of their retirement pay "
a right that likely would end in a Chapter 11 case.
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- ALPA officials said Grinstein's comment was the first
they had heard of the Sept. 30 deadline for an agreement on the early retirement
issue.
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- "I can't speak to their intent, but it distracted
from the fact that 6,000 to 7,000 people are going to lose their jobs and
Delta is abandoning a major hub," said Renkel.
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- " Staff writers Péralte C. Paul and Dave
Hirschman contributed to this article.
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