adding leather seats and in-flight entertainment to planes will take time.
Delta plan seen by some as setup for bankruptcy
The Associated Press
ATLANTA -- Key elements of Delta Air Lines' broad turnaround plan will take months if not years to implement, suggesting the struggling carrier is setting itself up for how it will survive after a likely Chapter 11 filing, industry observers and legal experts said Thursday.
Delta's plan, announced Wednesday, includes cutting up to 7,000 jobs, but over 18 months. The shedding of its Dallas hub will not take full effect until Jan. 31.
Delta will expand its hubs in Cincinnati, Atlanta and Salt Lake City with redeployed aircraft from Dallas-Fort Worth. The Salt Lake hub is Twin Falls air travelers' only nonstop destination.
The company's strategy to cut $5 billion in costs is targeted to 2006, and adding leather seats and in-flight entertainment to planes will take time.
By the Atlanta-based airline's own admission, however, time is running out.
"Those of us looking at it from an objective perspective are assigning a low probability of that plan being realized outside of bankruptcy," said James Owers, a Georgia State University corporate restructuring expert.
Delta said Wednesday that a bankruptcy filing could come as early as three weeks from now if it can't head off a mass exodus of pilots. Worried about their pensions, several hundred Delta pilots have retired early in recent months, and more have threatened to do so, the company says.
The pilots, meanwhile, have said they would be more eager to stay if Delta promised to preserve their accrued retirement benefits. Such a promise would be very unlikely and perhaps not even possible without setting up an expensive pension trust fund, observers say.
As for the $1 billion in pilot concessions the airline says it needs quickly to help avoid bankruptcy, the pilots union said last week it doesn't expect an agreement in the near future.
"The airline needs more than just concessions from pilots," said William Rochelle, an airline bankruptcy lawyer in New York. "They also need to restructure their business fundamentally and they have to re-negotiate aircraft financing. The latter two are very difficult to accomplish without the clout of Chapter 11."
Philip Baggaley, an airline analyst at Standard & Poors, said that if Delta can get the concessions from pilots it is seeking, that would go a long way in helping to avert bankruptcy.
But, he said in the context of the turnaround plan, "They also know that may not be possible and they are preparing for Plan B as well."
Baggaley said the pilot retirement issue has created a particular problem for Delta. It may be hard for the airline to avoid more early retirements because it may be more beneficial for pilots to cash in now, rather than wait until after bankruptcy if that happens.
Delta pilots who retire can elect to receive 50 percent of their pension benefit in a lump sum and the other 50 percent as an annuity later, regulatory filings show.
Delta's pilots are keenly aware of what has happened at bankrupt United Airlines, which has threatened to terminate its employees' retirement plans.
"It's looking less and less appetizing for employees in bankruptcy," Baggaley said.
