Gerald Grinstein, the retired railway executive who took over Delta Air Lines in January, has presented the fruits of his first nine months of labour in the shape of a sweeping cost-cutting plan.

In one of his first open meetings with Delta workers in Atlanta, Grinstein said the troubled carrier would cut 6,000 to 7,000 jobs and slash administrative costs by 15% over the next 18 months as part of a broad restructuring aimed at saving $5 billion in annual costs by 2006.

But Grinstein warns that bankruptcy was still "a real possibility" - his strongest statement yet on prospects of a court-protected restructuring.

The immediate threat of bankruptcy stems from Delta's only union, and must be decided by the start of October, Grinstein says. The Air Line Pilots Association (ALPA) has yet to agree any wage concessions to save around $1 billion a year. The airline has also yet to address a new issue - the rapid rate of retirement among senior pilots. It faces "possible operational disruption" from more early retirements, which means it may not have enough staff to fly its aircraft.

About 2,000 of Delta's 6,900 pilots are eligible to retire early. Grinstein says he saw some progress in the pilots talks, although ALPA disagreed. He was also optimistic about debt restructuring, but a creditor spokesman was sceptical.

Grinstein, who headed Western Airlines when Delta acquired it in 1987, says that Delta will restructure 51% of its flights by February 2005 and that this will be "the biggest one-day schedule change in our history and, as best we can tell, in airline history".

Delta will also strengthen its operations in Boston Logan, New York JFK, Columbus, Ohio and at three Florida airports - Fort Lauderdale, Tampa, and Orlando - by February.

By then it will have determined which aircraft types it is to retire but Grinstein says the Boeing 737-200, of which it has 50, is the most likely candidate. JP Morgan analyst Jamie Baker expects Delta's 26 Boeing 737-300s, its 16 Boeing MD-90s - which have no commonality with its 120 MD-88s - and all 15 of its Boeing 767-200s to go. However, Delta plans to add 12 aircraft to low-cost subsidiary Song's fleet of 36 lime-green and grey Boeing 757s.

Grinstein conceded to reporters in a private session that he had been a sceptic about Song. "I thought it was kind of garish," he joked about his change of mind on the airline. "It has taken a long time to teach me. Song has turned out to be an effective tool."

Delta will also seek route rights between Atlanta and a Chinese destination under the newly signed USA/China open skies pact, but will rely on the SkyTeam Alliance for much of its increased international flying. It will also rely on its Continental/Northwest domestic alliance for expanding its West Coast presence. Delta may upgrade in-flight entertainment across its fleet and may expand the simplified fare-pricing it is testing at Cincinnati.

Delta's restructuring plan

* Dismantle one of its four hubs, at Dallas/Fort Worth.

* Build up its Atlanta home base and its secondary hubs.

* Retire up to four fleet types.

* New aircraft interiors.

* Build up low-fares Song unit.

* Rework $20 billion debt, in or out of a Chapter 11 voluntary bankruptcy.


Source: Airline Business