Delta Air Lines is taking a more aggressive stance on lowering labour costs while cutting others by selling aircraft and slowing the expansion of its low-fare Song unit.
Delta is now in the front rank trenches of the long-running battle by airline management to lower labour costs. The carrier's new chief executive, Gerald Grinstein, has told the Air Line Pilots Association (ALPA) at Delta that he would not rule out a bankruptcy filing after the union said it would not negotiate early concessions from its industry-leading contract.
ALPA chief John Malone told pilots to consider setting up contingency funds and prepare for the likely scenario that the union will need to begin focusing on regular negotiations, most likely starting next year, when the contract opens for changes. CSFB analyst Jim Higgins says that Delta may have to come close to making good on the threat of court reorganisation. The airline may not "actually make it to the proverbial courthouse steps", he says, but "there may be some white knuckle moments in the coming months".
The existing contract, signed just a month before 11 September 2001, put Delta pilots at the top of industry pay and benefit levels.
Other airlines, including United and American, have since achieved significant wage cuts either in bankruptcy or at the verge of bankruptcy, and their cuts have widened the gap between Delta pilots and the next best-paid. But under US labour law, the Delta union does not have to agree to any early or mid-term alterations to the contract and can wait until the middle of next year before even discussing wages.
Delta's is, in any case, a high-stakes strategy, and certainly indicates Grinstein's willingness to take a more aggressive stance than the executives before him. UBS Warburg analyst Sam Buttrick says that "there is no such thing as a threat of bankruptcy. It has to be real. And, in our view, it's not. Smart managements won't likely play this card."
In addition to putting the "B word" on the table, Delta has taken significant cost-cutting steps, including the announcement that it will sell two of the Boeing 777-200s it was scheduled to take in 2005 and would convert its order for three more 777s due for 2006 delivery into positions for other unspecified Boeing models.
Delta has also backed off expanding its low-fares Song unit for the timebeing as its reviews its entire strategic direction and will concentrate on the innovative subsidiary's New York City area operations. Most of Delta's 2004 growth will be centred at New York Kennedy airport, home of jetBlue Airways, the fastest growing low-cost threat to the airline. Delta, the nation's third-largest airline, expects to post a loss of up to $350 million in the first quarter of 2004.
DAVID FIELD WASHINGTON
Source: Airline Business
