- The Washington Times - Wednesday, September 8, 2004

Delta Air Lines announced a plan yesterday to cut $5 billion in expenses by 2006 and lay off 7,000 employees, or 10 percent of its work force, in a desperate effort to avoid bankruptcy.

The nation’s third-largest air carrier is struggling with the same issues of high costs and tough competition as other major airlines.

Among them is US Airways, whose chief executive officer has said a second bankruptcy in two years is likely for the Arlington airline unless its unions agree to cuts in labor costs by the middle of this month.

“So far we haven’t reached any consensual labor agreements and we are getting close to the middle of the month,” said Jack Stephan, spokesman for the Air Line Pilots Association, the union representing US Airways’ pilots. “If you want to connect those dots, you can.”

The Delta “transformation plan” includes eliminating most of its flights out of its Dallas hub and expanding operations in Atlanta, Cincinnati and Salt Lake City.

“Difficult decisions had to be made,” said Gerald Grinstein, Delta’s chief executive officer. He described the transformation plan as a “comprehensive, 360-degree plan that reinvents Delta.”

Delta’s stock closed down 9.8 percent yesterday on the New York Stock Exchange at $4.04 per share.

The impact on the Washington area, where Delta flies out of all three major airports, is expected to be minor.

“Washington should stay the same or might see some increase” in flights, said Benet J. Wilson, Delta spokeswoman. “We have not yet released the details on how the cities are going to be affected.”

Nevertheless, Dallas-Fort Worth International Airport officials are bracing for the financial impact of Delta cutting daily flights at the airport from 256 to 21 by Jan. 31. The local work force would suffer the brunt of 7,000 layoffs Delta plans throughout its system.

“Naturally, we all express our concern for Delta’s local employees and their families,” said Max Wells, chairman of the Dallas airport’s board of directors. “The airline is doing what it believes is in its best interest to survive, and we’re glad the airline will maintain a presence here.”

Like US Airways, Delta is negotiating with its pilots to reduce labor costs. A large number of Delta pilots are scheduled to retire soon, increasing the airline’s significant pension obligations. Delta wants $1 billion in wage and pension concessions.

“If we can’t get what we need, then restructuring in the courts is not out of the question,” Miss Wilson said.

Another part of the transformation plan calls for increasing the fleet of Delta’s low-fare subsidiary, Song, by adding 12 aircraft to its current fleet of 36 by next spring.

Delta posted a $1.65 billion second-quarter loss, which was its biggest ever.

“All of the labor concessions and productivity moves they are making are things all of the legacy carriers are going to have to do,” said David Swierenga, an airline industry economist based in Vienna, Va. “Obviously these are all steps that have to be taken to avoid bankruptcy. I have no way of knowing whether they will be sufficient.”

Legacy carriers are large airlines that operate out of major airports with flights clustered around peak flying times. They include Delta, US Airways, United Airlines and American Airlines.

They compete with low-fare carriers, which use a “point-to-point” system of changing routes and schedules frequently to keep passenger demand high and fares low.

Other legacy carriers report woes similar to Delta from a combination of a competitive marketplace, high fuel costs and previous travel slumps caused by the Iraq war, the SARS respiratory virus and terrorism concerns.

UAL Corp.’s United Airlines has been in bankruptcy since December 2002. US Airways seeks $700 million in concessions from its pilots, mechanics and flight attendants unions to avoid bankruptcy.

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