Delta Air Lines Inc. pilots handed the struggling carrier a huge victory Thursday in its effort to avoid filing for bankruptcy protection, agreeing to slash their salaries by more than $1 billion and receive no pay raises through 2009.
The pilots union announced results of a 10-day vote by the Atlanta-based airline’s 7,000 pilots, who approved the plan with 79% of the vote.
Union leaders reached a tentative agreement with Delta after 15 months of negotiations. The five-year contract calls for a 32.5% pay cut and becomes effective Dec. 1. In return, the pilots get options to buy up to 15% of the company’s stock.
“Our airline has been managed to the brink of bankruptcy, and the Delta pilots had to decide between two bad choices,” said John Malone, chairman of the pilots union’s executive council. “They chose the lesser of two evils.”
Delta pilots are among the highest paid in the nation, with salaries averaging from $100,000 to $300,000 a year.
News of the contract’s ratification sent Delta’s stock surging nearly 6%, or 36 cents, in late trading. The shares rose 21 cents to $6.29 on the New York Stock Exchange.
Delta has lost more than $6 billion since early 2001, during which time it has eliminated 16,000 jobs and cut the pay of other employees, including its executives.
Last month, the airline reported a $651-million loss in the third quarter.
In a memo to pilots Thursday, Delta Chief Executive Gerald Grinstein acknowledged employees’ sacrifices. He said those efforts “represent a Herculean effort to control our own destiny -- a feat that is often attempted but seldom attained in our industry.”
Analysts said the pilot concessions were vital if Delta hoped to stay out of Bankruptcy Court. “It gives them a chance to fight another day,” said Ray Neidl, an airline industry analyst at Calyon Securities Inc. in New York.
The agreement also includes changes to work rules to increase the efficiency of pilot scheduling, a freeze on the pilots’ retirement benefits plan and higher premiums on their medical insurance.
The company said it needed the wage concessions to stay afloat. But company officials have warned that the agreement still may not be enough to avoid a bankruptcy filing.
Delta also must persuade the holders of its $20.6 billion in debt to restructure the repayment terms for all the pieces of its transformation puzzle to fall into place.