Delta pilots, court approve new labor contract

By Paritosh Bansal

WHITE PLAINS, New York (Reuters) – A U.S bankruptcy court
on Wednesday approved a new contract between Delta Air Lines
Inc. and its pilots’ union, averting a potential strike at the
airline and clearing a key hurdle in the company’s
restructuring plan.

Court approval came a few hours after the pilots voted to
for the new contract, which becomes effective June 1 and saves
Delta about $280 million a year through wage cuts and other
concessions.

At a hearing, Judge Adlai Hardin rejected an objection to
the contract by the federal pension insurer, the Pension
Benefit Guaranty Corp. (PBGC), which later said it would review
its options, including appealing the ruling.

Delta, which filed for bankruptcy protection from creditors
in September after being battered by high fuel prices and
competition from discount carriers, is seeking to raise $3
billion a year through revenue increases and cost cuts.

Separately on Wednesday, Delta reported a net loss of $27
million for April, after reporting a net loss of $2.1 billion
for the first three months of the year.

The airline said it ended the month with $2.5 billion in
unrestricted cash, cash equivalents and short-term investments.

Delta said it was on track to achieve about 70 percent of
its cost saving and revenue enhancement targets by the end of
the year, and expects to emerge from bankruptcy in the first
half of 2007.

The pilots’ deal was crucial to Delta’s success, Delta
Chief Financial Officer Ed Bastian told reporters outside the
court. He was pleased with the outcome after “highly
contentious, highly emotional” negotiations with the pilots’
union, Air Line Pilots Association (ALPA).

The 6,500 pilots voted 61 percent in favor of the deal,
which was reached in April after months of negotiations. The
union said 95 percent of the pilots voted on the agreement.

“I think it improves their chances,” Benchmark Co. analyst
Helane Becker said, referring to the probability that Delta
will emerge from bankruptcy. “If it wasn’t done, it would
pretty much have been the end of Delta.”

ALPA members had threatened to strike if the court allowed
Delta to void their current contract without a new negotiated
contract in place.

The contract, which is amendable on December 31, 2009, was
opposed by the PBGC, which objected to provisions for certain
payments to pilots should their pension plan be terminated.

The pension insurer said the money should go to the plan
that it will have to administer for pilots if Delta were to
terminate the current pension plan. The PBGC is operating under
a $22.8 billion deficit after assuming the liabilities of
pensions plans, mainly in the airline and steel industries.

But Hardin rejected the PBGC’s arguments, saying the
agreement did not preclude any claims the PBGC may have on the
airline.

“What we have here is a heavily negotiated deal involving
many issues,” Hardin said. “This issue needs to be resolved
now.”

(Additional reporting by Kyle Peterson)