Delta chief is optimistic
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 09/16/04
Delta Air Lines' chief executive officer said he expects to get a short-term deal with pilots to cope with a wave of early retirements, and he expressed guarded optimisim about chances of a broader cost-cutting accord to help ensure Delta's long-term survival.
• Made a new pitch to some of its creditors to help cut its massive debt load. Analysts say Delta needs deals with both pilots and creditors to avoid a Chapter 11 filing later this year.
• Revised its annual report to include new warnings by its auditor, Deloitte & Touche. The updated auditor's note said Delta's losses, labor issues and diminishing cash balance "raise substantial doubt about [Delta's] ability to continue as a going concern."
• Offered a preview of the new aircraft interiors it plans as part of the new long-term business plan rolled out last week.
Delta CEO Gerald Grinstein recently warned that a bankruptcy filing could come at the end of the month if an exodus of retiring pilots grounds aircraft and causes a further cash drain.
But after pilots union leaders agreed Tuesday to seek a deal that might allow Delta to use retired pilots to avert staffing problems, Grinstein raised Delta's odds of dodging that deadline.
The CEO said he has "high hopes, even expectations" that "the threat that was very imminent by the end of this month ... will be resolved," although he added that a deal probably won't come this week.
Grinstein's comments came in a lunch speech at Atlanta's Commerce Club. He showed clips from the movie "Apollo 13" and likened the airline's struggle to recover from three years of deep red ink to the effort to save the astronauts on the aborted moon mission. "Failure is not an option," he said, quoting a line from the movie.
The pilot retirement issue is separate from a broader, long-sought deal to cut pilots' industry-leading pay and make other cost-saving contract changes.
"More difficult is a long-term agreement," Grinstein said, adding that the concessions Delta wants would cut overall pilot compensation in half.
"They're having trouble getting their arms around it," he said, but "my conviction is that we will get that resolved, and I hope it will not be too far into the future because these are difficult times and our liquidity picture is changing."
Grinstein did not address efforts to win concessions from suppliers and creditors to ease the company's massive $20 billion debt load.
But late Wednesday Delta said it will offer up to $680 million worth of secured debt issues to current holders of $2.6 billion in unsecured debt securities. Basically the move appears to offers holders of the riskier unsecured debt a safer investment that is less costly to the company.
Delta recently asked for changes in the terms of an additional $1.3 billion in debt that would allow a similar move, but the creditors did not agree.
Under a new strategic plan Grinstein unveiled last week, Delta will cut up to 7,000 jobs, shut down its Dallas hub, and make other changes to cut costs and retool for a long-term recovery after huge losses that are driving the company to the brink of bankruptcy.
Delta is also trying to woo passengers with better aircraft interiors and promises to simplify its fares and frequent flier program.
A remodeled MD-88 Delta showed off at its maintenance base earlier Wednesday sported deep blue leather seats in coach, whiter LED reading lights, and upgraded lavatories and galleys.
The LED lamps won't need replacing for years, managers said. Replacing burned-out halogen reading lamps is the most frequent maintenance task in its cabins.
Delta also plans to remove ovens from the galleys on its 120 MD-88s. The weight reduction will save about $1 million annually in fuel costs, the airline predicts. Other changes include using carpet and interior panels that are more durable and easier to replace.
Executives said the airline is mulling more improvements that may include added legroom and more in-flight entertainment, such as satellite radio or video screens.
