Delta Air Lines Steps Up Transformation Plan to Accelerate Path to Profitability
New initiatives add $3 billion in financial benefits to previously announced $5 billion target;
Stakeholders will share in sacrifice as company restructures
ATLANTA, Sept. 22, 2005 – Delta Air Lines (NYSE: DAL) CEO Gerald Grinstein today
outlined an expanded and stepped up transformation plan designed to “save Delta in the near
term, so that it can compete and win in the long term.” The plan targets an additional $3 billion
in annual financial benefits by the end of 2007, on top of the $5 billion in annual benefits the
company is on track to deliver by 2006, as compared to 2002.
Delta will combine savings achieved through the Chapter 11 restructuring process with planned
revenue and network productivity improvements and more competitive employment costs to
achieve the $3 billion target, with each of the three areas accounting for roughly $1 billion in
revenue and savings benefits.
In a memo to Delta’s 52,000 employees, Grinstein said that the “transformation plan’s business
model has been designed to fortify Delta against the clear and present threats from our
competitors” and that Delta “intends to move from being an unprofitable airline today to a
profitable airline in just over two years.”
In-court restructuring
Utilizing the benefits of the in-court restructuring process, Delta intends to realize $970 million
in annual financial benefits through savings such as debt relief, lease and facility savings and
fleet modifications. The company has already rejected leases on 40 mainline aircraft, which it
was not operating at the time of Delta’s Chapter 11 filing, and plans to reduce the size of its
mainline operating fleet by an additional 80-plus aircraft by the end of 2006. These actions
accelerate by two years Delta’s plans to simplify the fleet by four aircraft types. With these
changes, Delta plans to operate seven mainline aircraft types by the end of 2006 – down from 11
today and 14 as recently as 2001. Reductions to the regional jet fleet at Delta Connection carrier
Comair are under evaluation and are expected to be determined soon.
Revenue and network productivity improvements
Ongoing improvements to Delta’s route network and revenue stream are intended to provide $1.1
billion in annual benefits. Key initiatives include:
•
Increasing point-to-point flying and right-sizing domestic hubs to achieve a greater local
traffic mix;
•
Reducing domestic mainline capacity by 15-20 percent to address over capacity in the
U.S. market; and
•
Growing international capacity by 25 percent in 2006 to pursue routes with greater profit
potential
Recently announced plans to strengthen Delta’s domestic hubs and grow international schedules
this winter, including the right sizing of capacity at Cincinnati and the addition of new or
expanded service to 41 international destinations, are examples of these strategies.
Competitive employment costs
Delta’s expanded plan also includes pay cuts and job reductions for employees throughout the
company, which Grinstein said “will be shared by all Delta people equitably and within the
context of comprehensive business plan,” including an opportunity for employees to share in
future success through enhanced profit-sharing.
Approximately $930 million in annual financial benefits are intended to be realized through
reduced employment costs, employee productivity improvements and overhead reductions. This
total represents annual savings of $325 million from Delta pilots and $605 million from the nonpilot
work force, including management.
Other components of employment changes include:
•
Eliminating 7,000-9,000 jobs systemwide by the end of 2007;
•
Reducing pay at all levels of management, including a 25 percent pay reduction for
Grinstein; a 15 percent reduction for officers; and a 9 percent reduction for supervisory
and other administrative personnel;
•
Reducing pay scales by 7-10 percent for most front-line employees, excluding those
earning less than $25,000 annually; and
•
Enhancing profit sharing to allow all Delta employees to share in future success from the
first dollar of profitability.
Grinstein said that as Delta moves forward, the stepped-up transformation plan will make the
company smaller and more cost efficient, while preserving its customer-focused heritage.
“Delta will move quickly and decisively to do what is necessary to beat our competitors and
meet our financial commitments, and this means we will become a smaller, more cost-efficient
airline, with a strengthened network and a stronger balance sheet,” Grinstein said. “Our
transformation will be sweeping and fast-paced; it must be if we are to survive and thrive as a
stand-alone company in control of our own destiny.”
Delta Air Lines is the world’s second-largest airline in terms of passengers carried and the
leading U.S. carrier across the Atlantic, offering daily flights to 502 destinations in 88 countries
on Delta, Song, Delta Shuttle, the Delta Connection carriers and its worldwide partners. Delta's
marketing alliances allow customers to earn and redeem frequent flier miles on more than 14,000
flights offered by SkyTeam and other partners. Delta is a founding member of SkyTeam, a
global airline alliance that provides customers with extensive worldwide destinations, flights and
services. Customers can check in for flights, print boarding passes and check flight status at
delta.com
.
I guess I'll be volunteering with the Guard. Anybody been to the desert lately?
