Looks Like Leo Is Leaving ATL

[Flying Freddie]

Press Release Source: Delta Air Lines


Leo F. Mullin, Delta Chairman and Chief Executive Officer, Announces Decision to Retire;
Monday November 24, 6:50 am ET
Steps Down as CEO on Jan. 1, 2004;
Remains Chairman Until Delta's Annual Meeting in April 2004
Gerald Grinstein Succeeds Mullin As Delta Chief Executive Officer on Jan. 1, 2004
John F. Smith, Jr. to Become Delta Non-Executive Chairman at the 2004 Annual Meeting


ATLANTA, Nov. 24 /PRNewswire-FirstCall/ -- Delta Air Lines (NYSE: DAL - News) announced today that Leo F. Mullin, Delta's chairman and chief executive officer, has decided to retire on May 1, 2004. Mullin will step down as CEO on Jan. 1, 2004, and he will remain chairman until Delta's Annual Meeting of Shareowners on April 23, 2004.

The Delta Board has named two highly regarded former chief executive officers, who have been integrally involved with Delta, to succeed Mullin.

Gerald Grinstein has been named Delta's CEO effective Jan. 1, 2004. He is a 16-year member of Delta's Board and has chaired the Board's executive sessions since 1999. He served as non-executive chairman of Delta from August 1997 to October 1999. He is a former CEO of Western Airlines and Burlington Northern railroad, and a former non-executive chairman of Agilent Technologies.

John F. (Jack) Smith, Jr., has been elected the presiding director of Delta's Board, and he will assume the position of non-executive chairman of Delta effective at the company's Annual Meeting in April of 2004. He is a former chairman and chief executive officer of General Motors Corporation and a member of Delta's Board since 2000.

Mullin's decision follows discussions he initiated with the Board of Directors earlier this year regarding his desire to retire. After careful consideration of all alternatives, Mullin and the Board finalized the succession plans and date of retirement at a Board meeting on Nov. 23.

The Board is confident that the combination of Grinstein and Smith has the proven corporate leadership experience and in-depth understanding of Delta to complete the critical transformation of Delta into a successful competitor in the evolving airline environment.

Smith said, "The Board of Directors is grateful to Leo Mullin for his strong, vigorous and effective leadership and dedication to Delta Air Lines. Immediately after joining Delta, he and the senior management team renewed the company's spirit, restored its focus on customer service and rebuilt its financial standing. Since Sept. 11, 2001, Leo has led the company and the industry through the most difficult years in aviation history.

"Thanks to Leo's leadership, the efforts of the management team and the hard work of all the people at Delta, the company today has a strong position from which to move forward, including an extensive global network through important partnerships like SkyTeam, a leadership position in deployment of RJ aircraft, a renewed commitment to customer service, and a clear focus on reducing costs. Those are notable achievements.

"The Board accepted Leo's decision to retire with regret. Jerry Grinstein and I look forward to working closely with him through this transition."

Grinstein said, "Leo has my thanks for his highly effective leadership of Delta through difficult times. But as Leo has often expressed, there is more work to do. As a first priority in this new position, we will meet and talk with Delta people in order to hear their ideas and enlist them as partners in building our future.

"I took this job because Delta is a company with great traditions, wonderful people and a legacy of success. We will build on those strengths as we transform our company and compete successfully in our new world. It is a great honor to have this opportunity to work with the Delta management team and all Delta people.

"Our job is to make Delta competitive and consistently profitable. To do that, we must further reduce Delta's costs substantially and permanently. That is an unshakable imperative if Delta is to be competitive in an industry adapting to the economics of low-cost carriers and restructured hub-and-spoke airlines. Delta people have made important progress in the difficult task of reducing costs, but we must get to where we can compete profitably in the new cost reality of our industry.

"Our efforts to reduce costs will not change Delta's long-standing focus on customer service. Delta people are the best in the business. They know how to serve customers well. Management's job is to help them do that job. By working together we can strengthen our company, serve our customers and then prosper and grow.

"We are fortunate to have Jack Smith as non-executive chairman. He will be part of the team immediately, then formally assume his new role in April. Jack is a savvy, proven executive who will help guide us through these tough times."

Grinstein said he will move to Atlanta soon. He will be in Atlanta and around the Delta system frequently in the next several weeks before joining the company full-time in January 2004.

In announcing his decision to retire, Mullin, 60, said, "I made this deeply personal decision to retire after a great deal of thought and reflection. I have a warm regard for this company and its people. Delta and the industry have undergone enormous transformations during my years as CEO. I am proud of what Delta people have accomplished in that time and where the company stands today.

"Delta is at a transition point between the good work of the past and the hard tasks ahead. This is a good time for me to move on to new challenges. There is vital work to do, and Delta has the strategy and the talent throughout the company it needs to succeed.

"The Board's appointment of Jerry Grinstein and Jack Smith to lead Delta is the right decision. Jerry and Jack each have led major companies in fiercely competitive industries in difficult times. They know Delta's strengths, competitive challenges and its people well. Delta is fortunate to have these two, tested leaders ready to step into these top leadership roles at this time."

Grinstein, 71, has been a Delta director since 1987. He served as Delta's non-executive chairman from August 1997 until October 1999. He has extensive, direct airline experience, serving as president and chief operating officer of Western Airlines from 1984 through 1985 and as CEO of Western from 1985 through March 1987, when Western was merged with Delta.

He joined Burlington Northern, Inc., in 1987 as vice chairman and became president and CEO of Burlington Northern in 1989. He was chairman and CEO of the company from 1991 until Burlington Northern's merger with the Santa Fe Corporation. He was chairman of the merged railroads until December 1995.

He was non-executive chairman of Agilent Technologies from 1999 through 2002. He serves on the Board of Directors of PACCAR, Inc., Vans, Inc., and The Brinks Company.

Smith, 65, served as CEO of General Motors from 1992 through 2000. He was chairman of the General Motors Board of Directors from 1996 through April 2003. He joined General Motors in 196l. Smith serves as chairman of the joint Advisory Board of AlixPartners LLC and Questor Partners Fund. He also is a member of the Board of Directors of Proctor & Gamble Co. and Swiss Re.

Mullin will receive a retirement benefit based on his participation in Delta's broad based-pension plan and on his agreement with the Board of Directors when he came to Delta in 1997. In addition to his actual Delta service, the agreement included credit for 22 years of service, which reflected pension benefits Mullin relinquished when he left his previous employer to join Delta. His total earned retirement benefit is valued at approximately $16 million, pre-tax, most of which was previously funded and disclosed.

As CEO of Delta, Grinstein will receive an annual salary of $500,000. As non-executive chairman of the Board, Smith will receive an annual retainer of $200,000, in addition to other director fees.

 

[General Lee]

Leo was brought in to "improve employee relations" after the board got rid of Ron Allen. What does he say to the pilots after we gave up 5% earlier and things started to turn around for the better and the other employees got back their 5%? "A contract is a contract." Even though the other non-union employees got back their pay, we had to wait until 2000.(really 2001) Yes, he has been some help to us, like getting us instant credit right after 9-11. But, the management pension scandal hasn't helped, and Carty over at AA did the same thing as Leo (hid a secret pension fund for execs) and got fired. Leo did not. I have also heard he is from BOS and never really did like ATL. The new guy, Grinstein, actually hired Leo. He was in charge of Western Airlines and sold it to Delta and Ron Allen. He has always been in charge of the board of directors. Hopefully he will have better direct relations with labor.

Also, Leo stated that we have $1 billion in extra costs compared to other pilots. I would like to see where he got that. We are down 2500 pilots since 9-11, and in many catagories we are short, requiring many greenslips (double pay on day off) to be handed out. If they just brought back some more furloughs, they wouldn't be short and wouldn't have to waste money on greenslips. But---no.......

Bye Bye--General Lee

 

[ATR-DRIVR]

General,
Any take the the relievers? Those of us down in the basement (C) sure would like any insight. Grinstein was with GM before and looking at the teamsters and history.....

 

[rjcap]

This is not neccessarily good news folks. Leo may have had his short comings but these 2 new guys are going to come out swinging.

Grinstein is 71 years old. Do you think he gives a sh-t if he takes the company to chap 11 to solve the cost problems.

I would also expect Skip Barnette and his happy go lucky crew to start sweating their jobs. With the recent bad press and low customer service ratings ASA may get some new mgmt.

 

[General Lee]

ATR-drivr,

Grinstein has been on the board since 1987 (when they bought Western---he was the CEO of Western). He is 71 years old I believe, and he still wants paycuts. It's probably the same situation as before. Some guys on the Dalpa board say it is good to have him, some say it might be rough. He has been in the backround the whole time---so I doubt anything new. With his age though, I bet he will be looking for a replacement----like Steve Wolf.......That could be scary. But remember, we don't have to give up anything right now---and two more years of negotiations could last until 2007. We probably will give up something, but only if everyone gives and we get a two year extension on the contract. The economy is improving, which can only help us. If things were getting worse, then it could be a different situation........

Bye Bye--General Lee

 

[Tim47SIP]

Not true Gen!

Leo was brought in to "improve employee relations" after the board got rid of Ron Allen. What does he say to the pilots after we gave up 5% earlier and things started to turn around for the better and the other employees got back their 5%? "A contract is a contract."


The fact is that Leo did not use the term "a contract is a contract" first. It was the Delta MEC that coined the phrase. The true story is that in 93 when the company asked for a 5% reduction in salaries, EVERYONE but the pilots agreed. Their reason was that "a contract is a contract". In 96 or abouts when the economy started it's rebound, the company reinstated the original pay amount and guess who came looking for their share? You guessed it, but since the pilots never gave a penny to help out the company, Leo stated the same response that the Delta MEC offered the company, "a contract is a contract".
Pretty much sounds like what is going on today.

 

[MedFlyer]

I expect Grinstein will only be temporary. He gets to play bad cop and beat concessions out of the pilots and take concessions from the other employees. After taking concessions, he'll have two options: (1) Turn the reins over to Leo's heir apparent Fred Reid or (2) sell DL off to either CAL or NWA.

Rjcap is right however, that Grinstein isn't likely to be afraid of BK. If the pilots force his hand, I could see someone like Grinstein taking DL into CH 11.

The other danger is that while DL's management is fumbling around, DL could become a target of a takeover artist. Guys like Carl lcahn love swooping in and buying up "distressed" companies and then selling them off in pieces. DL's stock is pretty cheap right now, so it wouldn't take much.

 

[jetflyer]

Hostage!,

How did you leave out that it was Comair's fault!! or the RJs fault!! It's only a matter of time before this becomes a Delta/Comair hijacking. Just thought I'd help it start now

Jet

 

[General Lee]

TIM47SIP,

No, you are incorrect. All of the employees gave 5% during the famous "7.5" period. When things started to get better, Ron Allen gave the other employees back their pay---paid for by the pilots 5%. That is the truth. The pilots 5% paycut was inturn paying the other employees their 5% pay back to them.



Medflyer,

A CEO can't just take a company into Chap 11----every stockholder would sue because the stock that they invested in would be worthless. And Grinstein is not a bean counter, and has dealt with unions before. Sure, he will still want paycuts---but he will deal with the union. We are the ONLY union at Delta, he has an easier job than most CEOs. He still hasn't asked for paycuts from anyone else other than the flight attendants---and the special retetion bonuses will have to go too...... And, the economy is getting better, and we still have over $2.9 billion in cash. Settle down there fella.....And, who is going to take us over? CO doesn't own anything---and they are very leveraged. NW has large pension problems too and was really hit hard from SARS---knocking their cash flow down. Carl Ichan is currently trying to buy Kodak I believe---something away from the airline business. Maybe Johnathen Orenstein will buy us??? What? You need some of those "meds" yourself.



Bye Bye--General Lee

 

[asacap]

Hey Leo,

Don't let the door hit your ass on the way out.

This guy was joke. Time for Skip to get the boot. Probably a few others too. The question is, can Delta change quick enough to survive. Everyday, Airtran, Jetblue, SWA, and others are getting stronger and stronger. In a few years, it will be too late for Delta. I think Leo saw this and decided not to go down with the ship. Just my opinion.

 

[General Lee]

ASACAP,

Ok, I don't follow you. Everyday it gets worse and worse for Delta? What? The only employee group that cannot have their wages lowered is the pilot group. We are currently negotiating for some sort of a paycut. Everyone else can get cut now because they do not have unions or contracts. The flight attendants just got hammered, with wage cuts and quality of life items that will save the compnay big time---but that was hardly mentioned in the press. We have let go of 16,000 people since 9-11, installed many many kiosks to help move passengers along, parked planes when we needed to (although most are coming back this year), and had operating profits over the Summer. Most of the current losses are due to one time charges associated with the Song start up. The extra $140 million due to pilot retirements was a one time fluke. We still have a lot of cash on hand, and the CFO said we were not even close to Chap 11. They say that "we are at a competitive disadvantage" when it comes to other companies, but that is only with pilot costs---the other costs can be controlled by them easily---no contracts. This gives Delta more flexibility than most other airlines. And, as I keep saying, it looks like we will be giving up some cash---but we won't be "giving it away...." A contract extension or snap backs is a smart move---and management knows that. I am not in my own "fairy tale land" and I can see that we have a debt problem, but we will not fold like AA---because we don't have their exact problems. (like buying a near bankrupt TWA etc) I am sure Dalpa is willing to work with Grinstein, but not fold like a deck of cards. The sky is NOT FALLING. The economy is actually getting BETTER. Fares are GOING UP. Loads are IMPROVING. We will probably give them some CASH. Delta has made quite a few improvements and has made a lot of cost cutting---that will eventually help. We are adding capacity back next year. Things will eventually get better, but we are not sinking....

Bye Bye---General Lee

 

[General Lee]

Here's the latest on the economy:


Economists Predict Strong Growth in '04

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - The U.S. economy, primed by tax cuts and low interest rates, should grow next year at the fastest pace in two decades, but that will do little to decrease unemployment, top economic forecasters predicted Monday.


The National Association for Business Economics said the vigorous economic growth will continue to be accompanied by strong increases in productivity, as corporations under competitive pressures find more ways to expand output without hiring new workers.


That could present a political headache for President Bush (news - web sites) in his re-election bid because the unemployment rate is a far more sensitive political barometer than productivity numbers.


But unemployment is seen headed in the right direction, at least, with a NABE forecasting panel predicting the jobless rate will average 5.8 percent in 2004, down from 6 percent currently.


The forecasting panel saw payroll employment rising by 1.1 percent, or about 1.3 million workers, not enough to replace the 2.3 million jobs that have been lost since Bush took office in January 2001.


While Democratic opponents are expected to point to weak job growth as a sign of Bush economic failures, the White House is apt to contend that the stronger economic growth is an indication that the president's tax cuts are starting to work.


The NABE outlook, assembled by a panel of 28 forecasters from various industries, predicted that the overall economy, as measured by the gross domestic product, or GDP (news - web sites), will grow by 4.5 percent in 2004.


If that forecast comes true, it would represent the fastest GDP growth rate in 20 years, since the economy surged 7.3 percent in 1984 when Ronald Reagan (news - web sites) was running for re-election.


"We are looking for a very strong bounceback," said NABE President Duncan Meldrum, chief economist at Air Products & Chemicals Inc. of Allentown, Pa.


He said the biggest threats to the forecast are that job growth will turn out to be even weaker than currently envisioned, which could undermine consumer spending, or that consumer and business confidence will be rattled by a further escalation of terrorist attacks.


The report said GDP — the value of goods and services produced within the United States — will rise 3 percent for all of 2003, up from 2.4 percent growth in 2002. After a decade-long expansion, the economy fell into recession from March through November 2001 and has been struggling to mount a sustained rebound.


Much of the current strength is coming from tax cuts Bush pushed through Congress in May and low interest rates engineered by the Federal Reserve (news - web sites), which is expected to keep holding its key benchmark rate at a 45-year low of 1 percent for some time to come.


"We just have an unprecedented amount of economic stimulus coming from Washington to boost economic activities," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "That is going to keep economic activity at very high levels."


Asked why unemployment was not expected to come down any faster given the strong economic growth, the NABE analysts cited the expected continued drive by businesses to boost productivity, the amount of output per hour of work, in a tough competitive environment.


The NABE forecasters predicted that productivity would rise by 4.1 percent this year and a smaller but still strong 3.7 percent in 2004.


Strong productivity growth, while depressing job creation, has acted to keep inflation under tight control because companies can boost their profits without having to raise prices.


The report predicted consumer inflation to rise a moderate 2 percent this year, when measured from the final quarter of 2002, and an even slower 1.7 percent next year.



The nation's twin deficits are projected to worsen, with the merchandise trade deficit forecast to hit a record $525 billion this year and set a new mark of $545 billion in 2004. The federal budget deficit, which reached a record $374 billion in 2003, will climb to $462.8 billion for 2004, the NABE panel said.

With economic growth rebounding, it said, interest rates will rise at a moderate pace. The 10-year Treasury note, a key determinant of mortgage rates, was projected to climb from to around 5 percent by the fourth quarter of next year, up from around 4.2 percent now.

That would mean that 30-year mortgages will likely rise to around 6.6 percent by this time next year, from 5.83 percent currently.

That increase will dampen housing demand, but only slightly, the report said, It predicted that housing construction will total a still robust 1.7 million units in 2004, down 5 percent from an expected 1.79 million units this year.



Bye Bye--General Lee

 

[Tim47SIP]

Here you go Gen!

No, you are incorrect. All of the employees gave 5% during the famous "7.5" period. When things started to get better, Ron Allen gave the other employees back their pay---paid for by the pilots 5%. That is the truth. The pilots 5% paycut was inturn paying the other employees their 5% pay back to them.


Here is the proof about your 5% that you guys supposedly gave. Here is an article that was posted in the AJC and Plane Business. It is a rebuttal for a paper written (and printed in the AJC) by John Ley who at the time was heavy in DALPA politics as a member of the MEC. I only put in the part of concern for this topic, but there is much more to read if you are interested. Mr. Held is not the only Delta pilot who rebuffed Mr. Lays allegations during contract 2000, as there were several stating the same information as in this article. I can post the link if you like.

By Bob Held, Pilot, Delta Air Lines

"Other Employees' Pay Raise and Mullin's 'De-linking' of Raises
Regarding the 5% pay raise the non-pilot employees received in 1996, here's some perspective on why the raise was non-pilot only. You see, back in late 1992, every Delta employee, except pilots, took a 5% pay cut.

We were also asked to take the pay cut, but our response was 'a contract is a contract' and we would only do so if we could negotiate some equivalent value for our concession. Ultimately, the company was unwilling to meet our conditions for giving up 5% of our pay, and those negotiations were abandoned. The 5% increase the rest of the employees got in 1996 restored their pay to where it had been before the cut several years earlier.

Am I passing judgment on ALPA's decisions regarding the pay cut negotiations? No. However, I don't want to mislead anyone into thinking we were overlooked by Delta when they made decisions on compensation increases.

As for Mr. Mullin's announcement that, in his mind, employee groups should not have their pay raises linked to one another's, that did not apply to pilots only. Shortly after he arrived, Mr. Mullin stated that he believed that every front line employee at Delta should be paid at the top of the industry for their area of expertise. This went against a long-standing, though unwritten, tradition at Delta. We always got pay raises in lockstep as a company. Our current management group believes that different jobs change in relative value in the overall marketplace, and that is what should determine compensation levels.

Delta's actions show a commitment to that policy. Sometime in 1998, they adjusted pay levels for all of the non-contract employees to put them at the top of the industry, regardless of the difference in percentage increases entailed among different employee groups. They announced that they would work toward the same goal with contract employees at each opportunity to negotiate. Since that time, we have negotiated rates on three different new aircraft types. Delta has made the industry's top rate their opening position in each of those negotiations. I am not familiar with any other company which uses that benchmark to establish an opening position.

Mr. Mullin's 'First Decision'

I don't agree that the 'first decision that unfortunately set the tone for Mr. Mullin's relationship with the pilots came on the subject of vacations.' Nor does the calendar seem to support this view. The company and ALPA filed for expedited arbitration in that matter in July 1997. Mr. Mullin wasn't named to the job until August and reported to work in September, just before the case was heard by the arbitrator.

I suppose our ALPA leadership actually had the opportunity to see him and ask him to intervene the weekend of his arrival. They were already at the airport when he showed up, picketing against Delta, and may have had an opportunity to run into him there.

By the way, I think only a few people have taken the time to read the decision of the arbitrator on the vacation grievance. It doesn't imply that ALPA lost the case because the 'me too' clause 'wasn't strong enough in court,' but because ALPA was misapplying that sound bite.

In his decision, the arbitrator explains that the clause was proven to historically not be applied in the manner ALPA was suggesting. In fact, unchallenged testimony at the hearing stated that ALPA's own negotiators crafted the vacation changes in the 1996 agreement specifically so that the 'me too' clause would not apply.

Leo Mullin's 'A Contract's a Contract' Statement
This statement comes up quite a bit during conversations at Delta. However, I also think that it is taken out of context; there is a 'rest of the story' aspect to this historical example, as well. Leo may have said, in effect, 'a contract's a contract,' but it's important to know the context in which these remarks were made.

When Mr. Mullin first showed up at Delta, our MEC chairman briefed him that Delta pilots were at a significant disadvantage in both pay rates and total compensation, especially against United and American. Because of that, the chairman presented a list of items which ALPA wanted the company to unilaterally change in the contract.

Because Delta didn't know all the intricacies of other carriers' compensation packages, Mr. Mullin ordered an analysis of total compensation by an independent agency (Hewitt Associates). It showed Delta pilots to be first in some situations, second and third in others, depending on the aircraft type and position analyzed.

Mr. Mullin told the MEC that, based on this analysis he was not willing to unilaterally grant ALPA's wish list. He also gave the MEC a copy of the analysis and extended an invitation to have ALPA's economic analysis team meet with the firm which produced the report so that they could double-check the results. That team met several times with Hewitt, but did not bring forth any disparities.

Lastly, the quote 'a contract is a contract' implies a certain bluntness and finality. In reality, we have seen the company unilaterally do several things throughout the duration of this contract which contradict that portrayal. Among those things were restoring our pay cut 16 months ahead of schedule; including the pilots in numerous benefit enhancements offered to the other employees, including enhancements to our 401K plan; converting our profit-sharing plan into guaranteed pay and making it count for pensions and retirement calculations; and enacting a number of scheduling enhancements."

Bottom line here General is that I am in no way condoning any actions to circumvent labor, but when we discuss items of this importance, the factual data should be presented in it's entirety and not simply as an opinion. I fully understand that you honestly believe (as many of your bretheren) that this in fact happened the way you describe, so no slam meant at all.

 

[XRMEFLYER]

Retiring Eh...

Got to love how a guy can work somewhere for a few years and receive a retirement/pension/whatever those scumbags want to call it. The kind of money he has collected over his tenure certainly should make for a comfortable retirement.

It's high time that executive compensation be tied directly to performance. Mine and most everyone else's certainly is.

Is anyone buying that line about how they have to offer the kind of compensation packages that they do "in order to attract and retain" the most qualified people? I'm fairly certain that there are more than a few Wharton MBAs out there on Virginia Ave. that could have done as well if not better for a whole heck of a lot less money at a time when the company is absolutely hemorrhaging money from the eyes and ears.

How about opening the job up to the lowest bidder(with some obvious minimum qualifications) like they do some of the DCI flying. Maybe then they wouldn't have to ask for (or just take in the case of some employee groups) as much in the way of concessions from the very people without whom the company would absolutely cease to exist. Can the same be said of those who occupy the front offices?

AMF!

 

[General Lee]

TIM47SIP,

I guess I stand corrected in some of the points. I was hired just after this debacle, and was told by a senior Capt friend that they all gave up 5% and then we paid for the others when they got it back and we did not. Still, I think Leo probably did say something like "A contract is a contract."

I also thought you went overboard a little with this statement:

"You guessed it, but since the pilots never gave a penny to help out the company, Leo stated the same response that the Delta MEC offered the company, "a contract is a contract".
Pretty much sounds like what is going on today."


Do you really think that we don't give a darn? We are willing to give them some help---but not give it away. That is basic and you should know that. We are in negotiations right now, and they can have some cash now---but have to give us something in return. To do otherwise is foolish. We have financial people who know what they are looking at figuring out exactly what and how much we can give----but Delta has to not put this all on our backs--especially since we are the only ones with a union and a contract. Everyone will have to "share the pain"---including managment. Doesn't that sound fair? We pay protection money to our union each month, and the others do not. Well, that sucks for them. This is all our fault again.....Including the $2.3 billion stock buy back before 9-11----man alive, that doesn't look like a very goods investment now, does it? That was OUR FAULT. Right? We are willing to give some back, just not all of it. Things are getting better, and that will help us in the future.

Thank you for the correction.

Bye Bye--General Lee

 

[asacap]

General Lee,

You forgot to mention the approx. $400 million expected 4th quarter loss. What about the pension deficit? Also, the profit made this summer was due to the tax money the government gave to the airlines, operationally DAL lost money. Leo stated that he didn't expect DAL to make a profit in 2004. I am not blaming Delta's problems on pilot saleries. That is only one of the many problems facing DAL. It looks like S&P will cut DAL credit rating. They may have to pay additional payments on those sold 737's. They are offering a higher yield on notes due in 2004. That will come back to haunt DAL at some point in the future. While all this is going on, SWA, Jetblue, Airtran, Frontier, and others are growing rapidly and gaining market share.

I don't want DAL to go under. I just don't know if DAL can change quick enough to compete effectively with the other airlines that have either agressively changed their strategy or the low cost, efficient airlines. The longer this goes on, the less likely it will be that DAL will return to its pre 9-11 operations.

 

[General Lee]

ASACAP,

The $400 million in losses this quarter were : $250 million (mostly due to Song one time charges for start up---including IFE installation, etc.) and the $140 million in the huge pilot retirement--a one time fluke--with 281 Capts retiring on one day--SEP 1st.

I saw the management chart showing payments in 2005. There was $1.8 billion in Captial expenditures( including a bunch of RJs for you), $800 million in pension payments, and $500 million in debt maturities. So, they took $500 million out of the Capital expenditures with the selling of those 11 738 orders (note---they kept your RJs), and that lowered the costs right there. Then the US House of Representivies just passed a bill allowing airlines to delay pension payments for up to two years---allowing them time for the stock market to rise (most pension plans have a lot of stock invested--and the economy went down the tubes and hurt everyone's pensions) and saving Delta around $180 million next year (2004) alone---more in 2005 probably. With the economy rising, more and more people will travel and not always go for the lowest fare when business dictates---which will help us. Fuel prices are due to go down (they went down $1.50 yesterday per barrel), which is the second highest cost to us after salaries. We cut 16,000 jobs since 9-11. This is important because some people think we are not adapting to the new realities. Sure we are, we are down 2500 pilots since 9-11, and we are negotiating for new rates right now. The airline is trying to get leaner and meaner----buying Kiosks, starting Song to compete with Jetblue, etc. They are even trying to go for lower wages ( or freezing your current ones) with you, and Delta is trying to adapt. We are farther ahead with our LCC Song than anyone else, and we have the planes NOW to compete---whereas Jetblue and Airtran are waiting for their new planes to be built. We put 36 757s into service in 7 months. (and 15 more will be on the way next year) We are starting to use our other planes more throughout the day to cover those 757s, and that is helping with aircraft utilization. We have people working on these problems, and our pilots will help eventually---but not get "taken." When you say we are not becoming more "efficient"---I ask, "Have you seen what has happened since 9-11?" 16,000 less employees, Kiosks, Song aircraft flying 2hrs more per day, Flight Attendants now flying 10 hours per day (pilots cannot due to FARS--even though Jetblue guys want to), 2500 less pilots, etc. Where else besides pilot pay---which is being negotiated---would you like to become more efficient? They are blaming everything on Pilot pay----and that is ridiculous. We are working with them, but other things will also have to be lowered, and that might need your help in our management's eyes.....

Bye Bye--General Lee

 

[asacap]

General Lee,

I can appreciate your optimism. I really wish I shared it, but I don't. DAL has made some improvements and increased efficiency however, there are many obstacles left. I know DAL can wait for the pension payments, but eventually they will come due. Even if the economy improves, it will still be a lot of money. They will also have to pay those high yield notes.
As far as your remark about ASA/Comair needing to share in the cuts (at least I think that's what you're talking about), we don't make enough money to make a difference. Personally, I would rather the company go out of business than take a single peney in cuts. As far as that pay freeze proposal is concerned, we will shoot that down too, just like Comair. If management keeps screwing with us, I hope our MEC takes things to the next level. My point is, don't expect us to share in the cuts. This ones all you. I think you care about your job much much much more than I (and much of ASA/Comair) care about mine.
Good luck

 

[General Lee]

ASACAP,

Believe it or not, I do not wish that you guys take paycuts, (even though I may have expressed similar views in the past) but rather I believe management will continue to press you for them. As long as Mesa and Chataqua continue to under bid you, and since you have no scope clause yourself, you will be forced into that type of situation. I flew for a "commuter" long before they turned into "regionals"---so I know about low pay too.

As far as the pension "crisis" and your worry about that, you have to remember that the pension shortfall is due to a combination of things---including a down stock market (which is rising again), and low interest rates---which are rising too. As those gain back to where they were, the shortfall gets smaller. The recently passed bill will help out becasue it will allow the stock market to gain and narrow the shortfall, resulting in less payments. As far as the debt maturities, yes---they are expensive. We will owe about $500 million in 2005 alone. But, this last summer we added $300 or so million as an operating profit, and our cash on hand did not decrease at all---we still have $2.9 billion in cash. Now, I would like to have more, and a better economy will help. Also, recent and future paycuts will help give extra cash to the company to help with those payments.

Here is something about the pension "crisis" I thought you might enjoy reading. It came out last week in the WSJ.



Is Pension Crisis a Scapegoat?

By THEO FRANCIS and ELLEN E. SCHULTZ
Staff Reporters of THE WALL STREET JOURNAL


Companies across the country have been taking an ax to their
pensions, citing rising costs and the declining health of their pension
plans. This year, some, like investment bank Morgan Stanley and
benefits-consulting firm Watson Wyatt & Co., have cut pension
benefits, while a few, including US Airways Group Inc., have killed
pension plans altogether.

Employers eager to cut pensions blame the "perfect storm" of falling
stock prices and low interest rates. That confluence caused corporate
pension plans to go from being 23% overfunded at the end of 2000 to
19% underfunded at the end of last year, according to Bear Stearns &
Co.

But some employees say their pension plans aren't as sick or costly as
their employers claim, and argue that the companies are just using
temporary market conditions as a pretext to cut benefits.

Indeed, the storm may be passing more quickly than realized. This
year, billions of dollars in investment losses have vanished, thanks to
a recovering stock market. And interest rates have moved higher,
diminishing the pension obligations companies must record. The Dow
Jones Industrial Average is up 16% year to date and the yield on the
30-year Treasury bond, a key pension benchmark, is 5.05%, up from
4.78% on Dec. 31.

"The two biggest tides have risen and should be lifting the boats,"
says Jack Ciesielski, a pension-accounting expert who writes the
Analyst's Accounting Observer newsletter for investors. Moreover, a
repeat of the "perfect storm" is unlikely -- interest rates and the stock
market have fallen in tandem only twice in the past 20 years, during
2001 and 2002.

Bear Stearns, in a report released last week, said pension plans are
now on a "path to recovery." The report predicts that by the end of
2004, pension underfunding for the 100 companies with the biggest
benefit obligations in the Standard & Poor's 500-stock index will drop
to 2%, from 12% at the end of this year.

Even though pension problems appear to be ebbing, companies
continue efforts to reduce or kill pension programs.

This summer, Morgan Stanley changed to a less-generous way of
calculating pension benefits. Instead of a formula that is based on an
employee's highest pay, it will instead use a "career average" formula
based on a staffer's average pay over all years on the job. Morgan
Stanley handouts made it clear that "most will accrue less in future
pension benefits as a result."

Securities filings show that Morgan Stanley's pension accounting
expense -- which represents the pension plan's impact on corporate
income -- rose to $121 million in fiscal 2002 from $68 million the
year before.

However, the filings also show that much of that increase was a one-
time cost related to terminating a pension plan, and most of the
remaining costs stemmed from accounting changes. Like most
companies, Morgan Stanley lowered the discount rate it uses to
calculate pension liabilities, and lowered its assumption for what the
pension assets would earn.

Most companies have made similar adjustments when estimating their
pension obligations, which have sent their pension liabilities and
expense soaring. (Such recalculations don't mean that companies
have to pay more money to retirees or, in many cases, even contribute
more money to their pension plans.)

A Morgan Stanley spokeswoman doesn't dispute this information but
adds that, despite the cuts, the company's new pension plan is "highly
competitive."

Similarly, Watson Wyatt, a big pension and benefits-consulting firm
based in Bethesda, Md., told its employees this summer that it would
stop contributing to 401(k) plans, and instead use the money "to
offset the increased cost of the pension plan and to help fund [fiscal
2004] bonuses." The company also cut pensions.

Filings show that while Watson Wyatt's annual pension accounting
expense -- a noncash cost -- did jump in 2002, the increase was
largely the result of cuts in the discount rate and declining investment
returns in recent years, which are amortized into the income
statement over time.

Eric Lofgren, global director of the company's benefits-consulting
group, says that the elimination of the 401(k) match was a temporary
change in response to temporary setbacks in the pension plan. In
contrast, the cut in pension benefits, which he called small, was
primarily a retention tool, he says. With slower pension buildups,
older workers need to work longer, he says, so the moves were
motivated "primarily due to our desire to keep people longer" at the
company.

Some experts, such as Mr. Ciesielski, wonder if some employers are
using the so-called pension crisis as an excuse to cut pensions in
order to save money rather than because of any market-driven
problems.

That's what retired US Airways pilots allege. Earlier this year, US
Airways, based in Arlington, Va., terminated the pilots' pension plan,
saying it was so underfunded that the burden of contributing money
to it would prevent the company from emerging from bankruptcy.

The retired pilots, who unsuccessfully sued to stop the termination,
said the company was exaggerating its pension problem simply to
dump a liability. They are now receiving reduced pensions, paid by
the Pension Benefit Guaranty Corp., a quasipublic pension insurer that
took over the plan.

Now, the airline is saying that the pension plan wasn't so underfunded
after all. It's back in U.S. Bankruptcy Court in Alexandria, Va., arguing
the pension liability is actually only about $900 million, not the $2.5
billion estimate publicized last spring. A lower liability means that the
PBGC would be entitled to less of US Airways' assets.

"Shame on them," says Tom Davis, spokesman for the Retired Pilots
Association of US Airways. "Their first objective was to terminate the
pension, so evidence was presented to support that. Now their
objective is to keep the PBGC from getting money, so they're saying
the plan isn't so underfunded after all."

Chris Chiames, a spokesman for US Airways, says the company
terminated the pension to keep the airline from being liquidated and
not simply to save money, and adds that the company always
disagreed with the underfunding estimates. "The request to terminate
the plan was carefully scrutinized and met with rigorous tests," he
says. "The actuarial estimates were reviewed by the bankruptcy court,
the PBGC, and its own independent actuaries as well. In addition,
multiple government agencies were all involved in the decision."

Although most companies don't go so far as to terminate their
pension plans, employees and retirees still have a hard time
evaluating claims that their pension plans are an undue burden on
their employers.

That may be changing. In August, the American Bar Association's
leadership announced that it would be cutting the pension plan for
900 staffers, citing stock declines and low interest rates, even though
both trends had reversed themselves this year. But 400 skeptical ABA
staffers passed the hat and collected more than $10,000 to hire legal
counsel and an actuary to go over the pension plan in detail.

The actuary, Kathleen E. Manning of MWM Consulting Group in
Chicago, found that the pension plan was well funded, and, in a
report presented to the association in August, noted that the liability
-- and future costs -- of the pension looked unreasonably high
because the association's projections assumed that interest rates and
investment returns would remain seriously depressed.

She added that a likely rise in interest rates and the stock market's
continuing recovery could solve much of the ABA's potential pension
problem.



Bye Bye--General Lee (read that last sentence again)

 

[pipejockey]

General Lee,

You indicated that 2500 pilots have been cut? The most recent Air Inc. newsletter says 1060 total with no more expected. Could you just clarify, I would hate to think that its actually 2500. And why are the Delta pilots asking to have their contract extended as a requirement in negotiations? I may be looking at this from a niaeve standpoint but I'd want the paycuts to last as shortly as possible.