ATLANTA (AP) -- Delta Air Lines Inc. has a tentative pilot deal on concessions and much-needed breathing room, but hasn't detailed the progress of its crucial debt restructuring efforts.
Delta's CEO cautioned Thursday bankruptcy remains a possibility.
Until the airline's roughly 7,000 pilots ratify the $1 billion in contract concessions and Delta learns if all the pieces of its transformation puzzle fall into place in time, there is still much uncertainty for the nation's third-largest carrier, which has a hub in Salt Lake City.
For now, investors, passengers and employees seem relieved that Atlanta-based Delta appears on the verge of getting a new labor deal with the pilots union to help it compete against discount carriers that operate with much lower costs.
"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 had warned that even with the concessions it still might be forced into bankruptcy because of its $20.6 billion in debt. Delta has been trying to restructure its debt, though the company remained mum Thursday on its progress.
"I'm concerned we're not getting updated in that area," said Ray Neidl, an analyst with Calyon Securities Inc. in New York. He said the pilot deal is a major step forward, though he added, "Now we have to wait the next couple of days to see how the rest of it's going."
The rest of it involves the company's offer 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.
Earlier this month, Delta extended the debt exchange offer to Nov. 18, but said it would give some creditors a better deal if they agreed to the terms by Tuesday. There still was no word Thursday about what the creditors' response has been to the offer. Delta also is trying to renegotiate its leases and contracts with certain vendors.
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.
Still, investors liked what they heard from the union, sending shares soaring. Shares were up 82 cents, or 16 percent, at $5.76 in late afternoon trading Thursday on the New York Stock Exchange.
The tentative agreement with the pilots union -- reached Wednesday night after nearly 18 months of intermittent talks -- includes a 32.5 percent wage cut effective Dec. 1 and no raises for the rest of the five-year pact.
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 get options to purchase Delta stock that would give them an equity stake amounting to 15 percent of the company.
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. Delta had only $1.45 billion left in cash at the end of the quarter.
During the next two weeks, union members will be given details about the proposed pilot agreement. The pilots will vote on the plan over 10 days, starting Monday. A simple majority vote is required for approval.
John Malone, chairman of the union's executive committee, told pilots in a memo that the agreement, while harsh on their wallets, is better than the alternative in bankruptcy court.
"Let me say from the outset that it pained me to see such drastic changes made to almost every section of our contract; they are significant and will affect each of us and our families," Malone wrote. "However, your union and our economic experts were convinced that immediate relief was necessary to prevent a bankruptcy filing in light of the company's economic condition."
Delta has already secured a commitment of up to $600 million in new financing from a unit of American Express Co. and an agreement to defer $135 million of its debt for two years, but those deals are conditioned on Delta achieving all of its cost-cutting targets.
Baggaley, the S&P analyst, said the debt exchange is conditioned on Delta getting 75 percent acceptance by each of its three bondholder groups. However, he said, company disclosures indicate the airline could choose to complete the exchange with only one of the three groups, that holding $330 million in shorter-term securities.
(Copyright 2004 by The Associated Press. All Rights Reserved.)