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WHITE PLAINS, N.Y., May 31 (Reuters) - A U.S bankruptcy court on Wednesday approved a new contract between Delta Air Lines Inc. (DALRQ.PK: Quote, Profile, Research) 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 Dec. 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)
© Reuters 2006. All Rights Reserved.
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 Dec. 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)
© Reuters 2006. All Rights Reserved.
