Judge Allows Sale Of Aircraft, But Questions Carrier's Past Choices

Delta Air Lines officials told US Bankruptcy Court judge Prudence Carter Beatty this week the company needs the approximately $3 billion in savings the carrier expects from employee concessions -- including the $325 million it is asking for from the union representing Delta's pilots -- if the carrier is to survive.

"In my opinion it (the cost reduction plan) is absolutely necessary," Delta Chief Financial Officer Edward Bastian told the court, according to the Associated Press. "We are losing cash at a fairly alarming rate. If we don't stop losing cash we won't make it."

Bastian added that should the Air Line Pilots Association chose to strike -- as it has threatened to do, should the court impose Delta's plan on pilots instead of the $90.7 million in concessions the union has offered -- the effect on the airline would be similarly "devastating."

The carrier has also maintained such a strike would likely violate the Railway Labor Act -- although Judge Beatty disputed that claim. "I don't have any jurisdiction of whatever you do," she said.

As has been extensively reported in Aero-News, ALPA maintains it has already given the carrier enough -- including $1 billion in annual concessions the union agreed to just last year. That plan also included a 32.5 percent pay cut.

The airline did get some help from the judge Tuesday, however, in reaching its $3 billion goal, by agreeing to allow Delta to sell an undisclosed number of its older aircraft, including Boeing 737, 767, and Embraer 120 models.

During the ongoing hearings, however, Beatty has also questioned the road Delta traveled over the past several years to reach the point the carrier finds itself at now. Specifically, Beatty questioned Delta's decision to spend $2.4 billion over the last few years to buy back its shares from stockholders, instead of holding onto the money for other uses -- such as hedging those funds against the $2.6 billion the carrier later lost in the first nine months of 2005.

"It is a question of if you had that money rather than had spent it that way, you might not be in the position you are in," Judge Beatty told Delta representatives, adding it may have been a case of the company "buying something worth nothing to me in order to make stock market price look good" to Wall Street.

At issue is a 1996 decision by Delta's board of directors to adopt two stock option plans, that had been previously approved by shareholders on the condition the airline would buy back shares to balance any loss in share prices when employees exercised their stock options.

The stock buyback plan lasted four years, according to the AP.

FMI: www.delta.com, www.alpa.org