ATLANTA – Delta Air Lines Inc. executives said Saturday the roughly $280 million in average annual concessions approved by leaders of its pilot union is less than the airline wanted, but it agreed to the deal because of the likelihood the pilots' pension plan will be terminated.
A company statement did not say how it arrived at that figure, which includes a 14 percent wage cut, but it said Delta believes the cuts are enough to help it successfully reorganize in bankruptcy.
"It also represents additional hardship for our pilots and I appreciate their consideration of something that is vitally important to the future of this company," Chief Executive Gerald Grinstein said.
The union issued its own statement saying the deal, which runs through 2009, was the result of "complicated financial negotiations," but it would not provide an estimate of how much it believes the agreement is worth, and the chairman of the union's executive committee, Lee Moak, did not respond to several requests for comment. A spokesman said Moak was busy addressing pilots' questions but may speak early this coming week.
The agreement replaces an interim deal accepted by the pilots that became effective on Dec. 15. That deal called for temporary cuts of 14 percent and other cuts equal to an additional reduction of 1 percent of wages. At the time, the value of the interim cuts was pegged at $143 million to $152 million a year on an annual basis.
Leaders of the pilots union ratified the new agreement, which includes assurances the union won't block any company effort to terminate its pension plan, late Friday after three days of meetings. The agreement between Atlanta-based Delta and union negotiators was reached April 14.
Union officials also agreed to send the accord to their 5,930 member pilots for a vote over the last half of May.
Rejection by the pilots could revive the threat of a strike against the nation's No. 3 carrier. If they approve it, the deal would go to the bankruptcy court for approval.
The deal says that effective June 1, pilots' hourly pay will be reduced 14 percent from the rates that were in effect on Dec. 14. But on Jan. 1, pay rates will be increased 1.5 percent. Further increases are included in later years of the agreement.
The deal includes — in what appears to be an aid to the pilots if their pension plan is scrapped — the equivalent of an interest-bearing note of $650 million with a 15-year term; the exact details were not immediately clear. The company had previously offered only a $330 million note, while the union had been seeking a $1 billion note.
The company also agreed to give the pilots a $2.1 billion bankruptcy claim. In a bankruptcy, such a claim is usually paid in stock in the reorganized company when it exits Chapter 11. The actual value will depend on the value of the company when it leaves bankruptcy and the size of the total claim pool.
Delta originally sought $325 million in annual concessions.
Before the tentative agreement was reached, Delta had been seeking to void its contract with the pilots so it could impose the full cuts it was seeking. The union had threatened to strike if the contract was rejected by an arbitration panel.
The arbitration panel's decision is now on hold with the tentative agreement, but it could resurface if the pilots reject the accord.
Delta's pilots previously agreed to $1 billion in annual concessions, including a 32.5 percent wage cut, in a five-year deal in 2004.
Delta, which filed for bankruptcy in September, has said its pilots who worked a full year in 2005 earned an average of $157,000.