Delta Pilots Spurn Contract Linked to $4 Billion of New Jets

Delta Air Lines Inc. pilots rejected a tentative agreement on a new contract, creating some financial uncertainty after the company linked the deal to acquiring more than $4 billion of jets.

 

The vote is a setback for management at Delta, the least- unionized major U.S. carrier, and the Air Line Pilots Association leaders who helped craft the accord. Hours after the proposal was unveiled in June, Delta had vowed to add 60 Boeing Co. and Embraer SA jets upon ratification.

 

Union pilots opposed the agreement with 65 percent of the vote, according to results released Friday.

 

Atlanta-based Delta had agreed to an immediate 8 percent raise and smaller boosts in future years, spurring complaints that the increases were being offset with lower profit-sharing payments.

 

“The pilots see the profitability and the low fuel, and they want more,” said Savanthi Syth, a Raymond James Financial Inc. analyst. “It would have been good to have that uncertainty off the table, but it’s not a big negative yet either.”

 

Delta reported a record first-quarter adjusted earnings of $372 million, and President Ed Bastian has said the Atlanta-based carrier is on pace for a record 2015.

 

“The process of membership ratification and the difficult decisions involved are never easy,” Delta pilot union Chairman Mike Donatelli said in a message to members. “Emotions often run high regardless of your perspective.”

 

Special Meeting

 

Donatelli called a special meeting of pilot leadership for July 21. Delta declined to comment on the vote, said Morgan Durrant, a spokesman.

 

The Delta Pilots Association, a dissident group, said the tentative agreement was rejected in part because it didn’t restore pensions and pay rates lost after the airline’s 2005 bankruptcy. Pilots also were unhappy with sick policy and travel pay changes, the group said.

 

“In bankruptcy, Delta pilots and our families sacrificed dearly,” the Delta Pilots Association said in a statement. “In a period of historic profits, it is Delta’s turn to reward the Delta pilot group for building a successful company.”

 

Analysts had hailed the proposed contract as a sign of labor peace, six months ahead of the January start date for new terms. Delta included the plane purchase as a sweetener: a plan to order 40 Boeing 737-900ERs valued at of about $4 billion and acquire 20 smaller Embraer E190s once the deal went through.

 

Adding the E190, which carries about 100 people, would introduce a new, smaller class of jets to the mainline operations of the world’s third-largest airline and have given new job opportunities to pilots.

 

(Michael Sasso and Mary Schlangenstein - Bloomberg Business News)