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If all goes according to plan, Delta Air Lines, cash-strapped and bankrupt, says it will be flying profitably again in about two years.
Until then, Delta's employees, customers and other stakeholders of the nation's third-biggest airline should expect a wild, uncomfortable ride.
On Thursday, Atlanta-based Delta said it will cut up to 9,000 jobs, reduce pay and take other actions to reduce costs and raise revenue by another $3 billion annually in addition to $5 billion planned for next year. That, the airline says, will get it out of Chapter 11 bankruptcy.
Delta "intends to move from being an unprofitable airline today to a profitable airline in just over two years," CEO Gerald Grinstein said in a statement.
The sweeping announcement came eight days after Delta sought protection from its creditors in a New York bankruptcy court amid soaring fuel costs and competition from low-cost airlines like Southwest.
"It's about time they made some adjustments to their work force," said Helane Becker, an airline analyst at Benchmark Co., a New York brokerage. "If they had done this sooner, they probably wouldn't be where they are today."
Starting later this year, Delta will shed 7,000 to 9,000 jobs, or up to 17 percent of its workforce. The company didn't say how many or which of Delta's 3,900 employees in Salt Lake City will be affected. "The determination of those will come in the next several weeks," Delta spokesman Anthony Black said.
The cuts will come from the 52,000 people employed by Delta, and not from any of its affiliates, such as St. George-based SkyWest. They come on top of about 24,000 jobs Delta has eliminated since 2001, when terrorists crashed airliners into the World Trade Center and the Pentagon and sent the airline industry into a tailspin. Delta has amassed losses of almost $10 billion since then.
The number of employees who lose jobs probably will be determined by the price of oil, said economist Jeff Thredgold, a consultant for Zions Bank in Salt Lake City.
"If oil prices go back down, perhaps they can get by with fewer cuts. The problem they face is they are going to have some morale issues," Thredgold said.
The airline is seeking $930 million in annual pay and benefit cuts on top of $1.4 billion in annual concession employees provided last year. The total includes annual savings of $325 million from pilots, the airline's only union employees. Another $605 million would come from flight attendants, mechanics and other nonunion employees. Black said the pay cuts will hit the nonpilot workforce on Nov. 1.
The pay scale cuts amount to 7 percent to 10 percent for most "front-line" employees. Delta attempted to soften the impact by exempting employees who earn less than $25,000. In a memo to employees, Grinstein said he will take a 25 percent pay cut. Other managers and executives will lose between 9 percent and 15 percent of their pay.
Pay discussions are under way with pilots, who are represented by the Air Line Pilots Association. On Thursday, ALPA Chairman John Malone said pilots, who gave back $1 billion to the company last year, "are again being asked to carry a disproportionate share of the recovery burden.
"While we understand that we are in bankruptcy court, we will not be rushed into the company's timeline if it is not in our collective best interest," Malone said in a statement.
Delta intends to save $970 million a year through debt relief, simplifying its aircraft fleet and tinkering with its Salt Lake City, Cincinnati and Atlanta hubs. The airline plans to reduce its domestic flights and increase its international operations, which usually are more profitable.
Black said Delta will decrease the number of flights out of Salt Lake to some cities, but the airline will continue to add new destinations. By year's end, Delta will have added more than 40 new routes since January, when the company shut down its Dallas-Ft. Worth hub, he said.
"That's pretty huge," Black said. "I think it will be focused on the most profitable and cost-effective routes that exist within your market. The flights that potentially could be cut are the least profitable [and] add the least value to the hub for passengers."
Delta said nothing about the fate of its pension plan, which is underfunded by roughly $10.6 billion. Analysts said the airline probably is keeping silent because the subject is too controversial. On Wednesday, ALPA's Malone said a massive exodus of Delta pilots into early retirement has raised doubts whether the airline's plan afford to make lump-sum payments to pilots who retire after Oct. 1.
"Unless something happens in Congress, the pension funds are going to be terminated," said Mike Boyd, an airline analyst in Evergreen, Colo. "Who wants to lend $1 billion or $2 billion to a company that has an immediate [pension] obligation of $3 billion to $4 billion?"
Boyd said Delta is likely to meet its target of emerging from bankruptcy before 2007. The company is blessed with strong managers who appear to have a recovery plan that takes into account high crude oil prices, he said.
"Two years may be a very long time, compared to what they are going to do. Unlike United [Airlines, which has been in bankruptcy almost three years], Grinstein has hit the ground running. This is not a fundamentally sick airline. This is an airline that needs to accommodate $60-a-barrel oil," Boyd said.
In his memo, Grinstein said the company's latest plan reflects crude oil prices at $68 a barrel for the rest of this year, and an average cost of $60 a barrel in 2006 and 2007.
"Our transformation will be sweeping and fast-paced," Grinstein said.