Even with deal, Delta still faces major obstacles

ATLANTA – Delta Air Lines Inc.’s tentative deal with pilots for $1 billion in concessions gives the nation’s third-largest carrier much-needed breathing room. But its crucial debt restructuring efforts remain a work in progress, and Delta’s CEO cautioned Thursday that bankruptcy remains a possibility.

The airline still must win the backing of its roughly 7,000 pilots, who will vote on a new contract that calls for a 32.5 percent wage cut effective Dec. 1 and no raises for the rest of the five-year pact.

Delta also must convince 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.

For now, investors, passengers and employees seem relieved that Atlanta-based Delta appears better positioned to compete against discount carriers that operate with much lower costs. Delta shares surged 78 cents, or nearly 16 percent, to close at $5.72 Thursday on the New York Stock Exchange.

“Reaching a preliminary pilot agreement is the single most important hurdle they have to clear, but certainly not the only one,” said Philip Baggaley, an airline analyst with Standard & Poor’s in New York. “They’re not out of the woods yet.”

Delta pilots are currently among the highest paid in the nation. They earn an average of $100,000 to $300,000 per year, according to the company.

Among other concessions are revisions in the pension plan and work rules. In return, pilots would get options to purchase up to 15 percent of the company’s stock.

Delta remained mum Thursday on its progress in winning concessions from its debtholders. The company has offered to exchange $680 million of its debt with new notes secured by $1.2 billion worth of debt-free aircraft, flight simulators and flight training equipment. The offer was made to holders of $2.6 billion in various forms of Delta debt.

Chief executive Gerald Grinstein said in a statement Thursday that a bankruptcy filing remains a possibility, though he noted Delta is “making significant progress” and is “on course” with its transformation plan.

“Time is of the essence, but given the additional sacrifices that undoubtedly will be required if we file for bankruptcy, I believe it remains in our collective best interest to restructure our company on our own,” Grinstein said.

Delta’s other major work groups, including flight attendants and gate and ticket agents, are not unionized. The company has cut the pay of its other employees, including executives’ salaries.

Delta has lost more than $6 billion since 2001, during which time it has also cut 16,000 jobs. Delta plans to cut up to another 7,000 jobs in the next 18 months. Last week, the struggling airline reported a $651 million loss in the third-quarter.