Delta to Cut Employee Pay 10%

Delta Air Lines Inc. on Tuesday said it would reduce executive and employee pay 10% starting in January and its chief executive would go unpaid for the rest of the year as it tries to cut costs to avert a bankruptcy filing.

Separately, Delta pilots ratified an agreement that would allow the carrier to use retired pilots if staffing levels fell dangerously low.

Delta also said it would increase employee costs for healthcare coverage, reduce maximum vacation time, eliminate a subsidy for retiree medical benefits and offer two voluntary exit packages to employees.

As part of its cost saving measures, Delta said this month it would cut up to 7,000 jobs, or about 10% of its workforce, over the next 18 months and drop Dallas/Fort Worth as one of its hubs.

Chief Executive Gerald Grinstein, in a memo to employees Tuesday, said the changes -- in addition to the $1 billion in annual savings the company was seeking from pilots -- were essential to Delta’s survival.

“We have a small window of opportunity available to us to avoid Chapter 11 that some other carriers do not have,” he said. “It is in everyone’s best interest that we protect Delta’s future by taking these steps together now.”

Grinstein said he had hoped increased productivity, the lack of pay increases since 2000 and the reduction of 16,000 jobs would eliminate the need for additional sacrifices.

But Delta is strapped with high costs, weak revenue and rising competition from discount carriers.

It said its fuel costs this year would be $680 million more than last year.

The changes are part of its plan to save $5 billion a year by 2006.

Delta has previously said Grinstein’s annual salary is $500,000. Grinstein’s predecessor, Leo Mullin, stepped down last year after being sharply criticized for his pay package.

The airline has been in concession talks with its 7,400 pilots, its only major unionized group, since last year.

In exchange for use of the retired pilots on a contract basis, Delta has assured the union it will not file notice to cancel the pilots’ pension plan before Feb. 1, even if the company files for bankruptcy before that date.

Waves of Delta pilots recently have taken early retirement, raising concerns that a decline in staffing levels could require the carrier to ground a portion of its fleet.

Capt. John Malone, head of Delta’s unit of the Air Line Pilots Assn., said ratification of the deal on retired pilots allowed the union to refocus efforts on an overall agreement as part of the company’s restructuring.

Shares of Atlanta-based Delta rose 40 cents, or 13.6%, to $3.34 on the New York Stock Exchange.