Delta Pilots Agree To More Cuts, Easing Path To Ch. 11 Emergence

A bankruptcy court judge was expected yesterday afternoon to rubber-stamp Delta's new pilot concession deal, after the airline gained approval from both its pilots union and a group of retired pilots who had previously opposed the concession agreement.

The outcome of the union vote was keenly anticipated as one of the major steps required for the airline's eventual emergence from bankruptcy. The margin was relatively convincing when all votes were eventually tallied, with 61% in favor. A tentative deal was reached last month and was endorsed by pilot union leadership.

PBGC Opposition

Delta will save $280 million a year as a result of the concessions, which are in addition to previous pilot concessions. To help win pilot approval, Delta promised the union a $650 million note if the pilot pension plan is terminated, a move that is now all but inevitable. The Pension Benefit Guaranty Corp. opposed the concession deal because of this pension termination clause.

Delta managed to remove the other objection to bankruptcy court approval of the deal when it reached an accord with DP3, which represents retired pilots. Delta agreed to provide retired pilots an administrative claim of $9 million, covering benefits accrued between Delta's bankruptcy filing and the termination of those benefits.

Exit From Ch. 11 In 2007

Airline management described the pilot ratification vote as "crucial to Delta's successful reorganization." The airline said that "barring any disruptions," it is on track to achieve about 70% of its targeted $3 billion annual savings by yearend, "with the goal of successfully emerging from bankruptcy in the first half of 2007."

Standard & Poor's analyst Phillip Baggaley said the approval of the pilot concession deal averted a potential strike, and advanced the airline's prospects of reorganizing under bankruptcy protection. With the concession hurdle overcome, Delta will probably proceed with its plan to terminate the pilots pension plan, continue negotiations with creditors to lower debt service costs and pursue its initiatives to lower its "still-substantial" operating losses, Baggaley said.

These moves "would lay the basis for a proposed plan of reorganization, including exit financing in the form of secured debt and, possibly, new equity investment," said Baggaley.

AWIN