Delta Air Lines asked its pilots union yesterday for wage and benefit concessions worth $1.02 billion a year, including a 35 percent pay cut, and said it wanted to replace their pension plan with a more affordable version.
The offer was made to leaders of the Air Line Pilots Association at a meeting in Atlanta, where Delta is based, and outlined in a letter to union members.
The $1 billion request is greater than a proposal made by the Air Line Pilots Association to Delta last week and also tops Delta's original proposal for cuts worth $800 million, made to pilots in January. The union said it could make concessions of as much as $705 million a year, equivalent to a 23 percent wage and benefit cut, as well as work rule changes. In return, the union was seeking a stake in the company as well as board representation.
Although that offer broke a months-long standoff between the two sides, Delta officials had signaled they would be seeking more from the union, after reporting second-quarter results that were the airline's worst in a quarter-century.
The pilots union said on a hot-line message that it was studying the new proposal but it said the plan did not address its bid for ownership in the company and other key points.
Delta lost nearly $2 billion last quarter, in large part because of a huge noncash charge to account for the cost of early retirements of hundreds of pilots. The airline's management is putting the final touches on a restructuring plan that it plans to present to its board on Aug. 18.
The plan, which will reorganize the way the airline does business, is aimed at avoiding a Chapter 11 filing, which Delta said it might have to seek if it cannot reduce its costs.
Though Delta sought less at the start of the year, the new proposal represents "the minimum amount," combined with cuts elsewhere, that will allow Delta to regain long-term viability, Delta's chief executive, Gerald A. Grinstein, said in the letter to pilots.
Mr. Grinstein said the company could not afford to accept less. "To be clear, the market is dictating our need," he wrote.
Mr. Grinstein said the airline planned to create a new retirement plan for Delta's pilots, who are the highest paid in the airline industry. He said the plan would fall within "the boundaries of viability" for the airline.
Pension plans have become a touchy subject in the airline industry, after the decision by United Airlines last week not to pay its pension obligations until it emerges from Chapter 11 protection because of pressure from potential lenders that do not want to take on the burden.
Mr. Grinstein told pilots that Delta was watching United "because what happens there could have far-reaching effects throughout our industry." However, Mr. Grinstein pledged to protect the pension benefits that the airline's pilots had accumulated, retain their right to take their retirement money in a lump sum and to finance its existing obligations.
The company and the union have not set a deadline for reaching an agreement. But Mr. Grinstein pushed the pilots for a deal as soon as possible. The mood among negotiators was somber upon hearing the proposal, people who participated in the discussions said yesterday.
Meanwhile, US Airways, which is pushing its unions for wage and benefit cuts so that it can avoid another bankruptcy filing, said yesterday that its health care expenses had soared more than 40 percent this year, even though it had fewer employees.
This week, US Airways said it posted a small profit for the second quarter. But its chief executive, Bruce R. Lakefield, warned that the airline was facing a significant loss in the second half of 2004 unless its employees granted a third round of contract concessions.
They granted two rounds under Chapter 11 bankruptcy, from which US Airways emerged last year. Faced with stiff competition from low-fare carriers, which emphasize direct flights, the airline wants to concentrate more on point-to-point flying from big East Coast markets, while dismantling its hub in Pittsburgh.
But Mr. Lakefield said the airline could not make those changes without deep cost cuts. In an employee newsletter, the airline said it had paid $99.4 million in health care coverage for active, laid-off and retired workers between January and May, the latest month for which information was available.
That was nearly 41 percent higher than the $70.5 million paid for health care during the period a year earlier. The airline's health care benefits are self-funding, meaning that if deductions do not cover expenses, the airline is forced to pay the difference from its general assets.
Costs rose even though US Airways' plans had 12.7 percent fewer people enrolled. And the cost of health care for its furloughed workers did not drop, even though the number of people covered declined by more than two-thirds.
"Clearly, we have to do a better job in managing health care costs," said Karolin Cheboski, the director of benefits strategy at US Airways.