March 18, 2008 Delta to offer voluntary severance payouts to 30,000 employees

ATLANTA (AP) - Delta Air Lines, faced with a weak economy, dimmer hopes of a combination with Northwest Airlines and record fuel prices that are eating up profits, said Tuesday it will offer voluntary severance payouts to roughly 30,000 employees - more than half its work force - and cut U.S. capacity by an extra 5 percent.

Executives at Atlanta-based Delta said in a memo to employees that the airline's goal is to cut 2,000 frontline, administrative and management jobs through the severance program, attrition and other initiatives.

Delta spokeswoman Betsy Talton said the company would accept more job cuts, if more employees than its goal take the voluntary severance. The severance program primarily affects mainline Delta employees. It will not affect Delta pilots, who have a union contract with the company, and employees at Delta regional carrier Comair, which is based in Erlanger, Ky.

One part of the program is for employees who are already eligible for retirement or for those whose age and years of service add up to at least 60, with 10 or more years of service. The other part of the program is an "early-out" offer for frontline employees - such as flight attendants and gate and ticket agents - with 10 or more years of service and for administrative and management employees with one or more years of service.

Besides severance payments, employees who take the offers also will be entitled to travel privileges and additional

Delta had 55,044 total full-time employees as of the end of last year. Delta, since 2001, had previously announced it would cut up to 33,000 jobs.

Oil prices recently cracked $111 a barrel, nearly twice what they were a year ago. Delta said that in the past three months, fuel prices have climbed nearly 20 percent and its 2008 fuel bill is now expected to increase by more than $2 billion over 2007.

Delta shares rose 55 cents, or 6 percent, to $9.78 in afternoon trading Tuesday. The company's stock price has lost more than half its value since Delta emerged from bankruptcy last April.

The memo from Chief Executive Richard Anderson and President Ed Bastian did not mention Delta's talks with Northwest Airlines Corp. about a combination that would create the world's largest airline. Bastian also spoke to investors Tuesday at a conference in New York.

"We're focused on addressing our challenges," Bastian said at the conference. "We're moving quickly. We're focused on performance."

Bastian said Delta will continue to grow internationally. He brushed off concerns raised by one analyst that robust international expansion may be the wrong approach while many corporations are cutting back on travel as the economy weakens.

The airline said that this summer more than 40 percent of its capacity will be dedicated to international flying, where it can get better premiums on ticket prices. Delta plans to increase international capacity by more than 15 percent this year.

At the same time, it expects to reduce domestic capacity by 10 percent by August, 5 percent more than under its previous business plan. Delta plans to use some aircraft less and park 15-20 mainline aircraft and 20-25 regional jets. It also plans to sell some aircraft as those planes are removed from service.

On Monday, Delta's pilots union said it had told company executives it can't agree on seniority issues with its counterpart at Northwest, raising serious doubts about the prospect of a combination of the two companies.

The disclosure was made in a letter from the head of the pilots union at Delta, Lee Moak, to rank-and-file Delta pilots.

The letter does not mention Northwest by name, but makes references to the other union as the only one Delta pilots have been talking to. Multiple officials close to the talks have said in recent months that the other company was Northwest.

The letter talks about the discussions with the other carrier in the past tense, suggesting at least for now there won't be further talks.

The two carriers don't need a pilot seniority integration deal in advance to move forward with a combination, but Delta Air Lines Inc. executives have said they would not move forward with any combination unless the seniority of their employees was protected.

A Delta-Northwest combination deal could proceed without a pilot seniority agreement, but that would be up to the boards of the two companies.

At least one airline analyst, Calyon Securities' Ray Neidl, sounded doubtful that will happen, at least in the near term.

Bastian said Tuesday that he would not be able to provide details on the consolidation discussions. He said the process Delta's board is conducting to review strategic alternatives is "fluid."

"We are proponents of consolidation, but it does have to be the right deal," Bastian said.

Asked by an analyst why Delta doesn't seem willing to move forward without a pilot deal first, Bastian responded, "No. I'm not going to bite."

Bastian reaffirmed Delta's first-quarter earnings guidance. He said the company will be updating its full-year guidance considering higher fuel costs.

"It is not out of the question for Delta to be profitable this year, albeit it modestly profitable," Bastian said.

Delta has now targeted $550 million in productivity initiatives for 2008, a $150 million increase over its previous plan.

The airline is deferring any decision on 2008 pay increases for employees until executives "better understand the outlook for our business," according to the memo sent to employees Tuesday.

In Salt Lake City, a major Delta hub, employees said Tuesday they were aware of the severance plan but were told not to comment to reporters. Delta has 3,750 workers in Utah.