And now, back to the subject.
This is a excerpt from a memo from Jerry:
We know there has been speculation in the media and elsewhere that Delta may be heading for a Chapter 11 filing. Many companies have used the Chapter 11 process to help them reduce their costs and strengthen their balance sheets. Delta’s Board and management team are working hard to achieve a competitive cost structure and long-term viability without seeking Chapter 11 protection.
But the outcome of these efforts is not fully within our control. Market conditions, competitive forces, and our ability to achieve a realistic pilot cost structure will each play a critical role. Because of our cost disadvantage versus the LCCs, even an improving economy, better marketing, lower fuel costs, further non-pilot productivity improvements, or any combination of these factors won’t be enough to achieve long-term viability unless we eliminate what has become a huge disparity between our pilot costs and those of our competitors—legacy airline and LCC alike.
Despite the sacrifices already made by many in the Delta family, including the reduction of more than 16,000 jobs over the past three years, changes in benefits and in other areas—our unit costs are now, along with those of USAirways, by far the highest in the industry. While we are aggressively exploring every possible opportunity to make, and save, money, the biggest factor in our current financial situation is no secret. Virtually every major airline, in or out of bankruptcy, has made dramatic modifications to the historical pay structure of its pilots—except Delta. As a result, based on pilot costs per block hour, Delta’s pilot costs are 59% higher than American’s, 62% higher than Continental’s, 82% higher than United’s, 133% higher than Southwest’s, 193% higher than JetBlue’s, and 207% higher than AirTran’s. These numbers do not yet reflect the latest 4.5 percent pay raise Delta pilots received beginning May 1, 2004.
Our pilots have been key players on the Delta team for many years, and their contributions are appreciated. But in today’s airline industry environment, marked by increasingly intense competition and (at best) razor-thin profit margins, we simply can’t afford to pay pilots—or any employee group, for that matter—at non-competitive levels. We will continue to urge ALPA to accept a modified labor agreement for our pilots that, while still competitive, reflects the new economic and industry environment.
It has been a year since Delta put its proposal on the table. Responses from ALPA to our requests for relief have fallen far short of what is needed to allow Delta to achieve a sustainable future. Unfortunately, Delta’s situation has become far worse in the year since we first presented our proposal, and that must now be reflected in our discussions with ALPA. The company's new proposal cannot be a bargaining position from which to negotiate down. It will represent the minimum savings amount that Delta must obtain from the pilots, however painful, if this company, and their jobs, are to survive.
ALPA understands how serious this situation has become. In the more than a year since we first talked with the union about needing to significantly reduce pilot costs, we have opened our books to ALPA and its advisors. Our objective has been to have a completely open process with detailed information available to all.
The urgency of our situation is clear. No matter what our business plan looks like, there can be no doubt that pilot costs are the largest boulder in the road that must be dealt with if we are to have a chance to address our other challenges.