Benefits September 28, 2004

Delta Chief Announces Sweeping Cuts

September 28, 2004 (PLANSPONSOR.com) - Delta Air Lines on Tuesday announced a sweeping series of cost-cutting moves that includes a 10% pay cut for executives and others and the elimination of retiree health benefits.
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In a memo to airline employees from chief executive Gerald Grinstein, the company announced:

  • an across-the-board pay reduction of 10% for executives, supervisory and administrative, and frontline employees (with smaller reductions for some entry-level jobs)
  • the elimination of the Delta subsidy for retiree and survivor health care coverage at age 65 and after, effective for those retiring after January 1, 2006.
  • increases to the shared cost of health care coverage
  • the offering of two voluntary exit programs – one an early retirement medical option and the other a travel-based exit package – in an effort to minimize the number of layoffs.

With all the cuts, Grinstein also announced that the company is developing an Employee Reward Program that will provide a combination of equity, profit sharing, and incentive payouts tied to performance.

Also Tuesday, according to news reports, Delta’s pilots said they have ratified an agreement allowing Delta to employ newly retired pilots to prevent staffing shortages. Delta has warned it would have to file for bankruptcy if it didn’t slow the pace of early pilot retirements by the end of September.

The agreement between Delta and its pilots also includes written assurance from management that the company will not file notice of intent to terminate the pilots’ pension plan prior to February 1 even if the company files for bankruptcy protection before then. The cuts do not affect the pilots because they are unionized and have a contract with the company.

“This is painful and difficult, particularly because you already have been affected in various ways and you are working harder than ever before,” Grinstein told employees in the memo. “I did not want nor intend to ask everyone for more sacrifice. But regrettably, the industry environment and our company’s worsening financial situation have deepened the gap between where we are and where we must be to survive and succeed over the long term.”

Delta has already reduced its workforce by 16,000 employees in the last three years. Earlier this month, it said it would cut up to another 7,000 jobs over 18 months and shed its Dallas hub. The airline has lost more than $5 billion since 2001 and has racked up $20 billion in debt as it has faced higher fuel prices and increased competition from low-fare carriers.

Delta also is seeking $1 billion in concessions from its pilots.

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