Analyst Smacks Airlines Over Labor Demands

At least one analyst on Wall Street thinks Delta and Northwest might be penny-wise and pound foolish when it comes to demands for deep cuts from labor.

"Managements must compromise, in our opinion," UBS Securities analyst Sam Buttrick said Wednesday in a note to investors, quoted in the Atlanta Journal-Constitution. "Each month that passes without a pilot deal is costing shareholders at [Delta] and [Northwest] tens of millions of dollars. Paying above-market wages for a prolonged period to get market wages late is not a noble exercise."

You'll remember that Delta asked its flight crews for a phased-in 31-percent cut in wages last year, at around the same time other airlines, including American and United, sought and obtained deep cuts from its crews.

Outraged, Delta pilots countered with a mere nine-percent wage cut proposal. Delta pilots also offered to forego a planned 4.5-percent pay hike scheduled for May, but didn't give up raises slated for later -- if the airline would grant a three-year contract extension.

Delta pilots are the highest paid in the business.

United, of course, went bankrupt. American won its concessions from pilots by threatening to file bankruptcy immediately if the labor cuts they demanded weren't immediately approved. Delta made the same threat.

But Buttrick wonders now if that tactic still holds water.

"Bankruptcy is no longer a credible alternative," he told the Journal-Constitution. "There is no such thing as a 'threat' of bankruptcy. It has to be real. And, in our view, it's not. Smart managements won't likely play this card."

But Delta's new honcho, Gerald Grinstein, seems to indicate the threat is a real one.

The Journal-Constitution reports, since taking over as CEO, Grinstein has repeatedly warned that he won't accept a deal with the pilots unless the cuts are deep enough to keep something special in the air over the long-term.

FMI: www.delta.com