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Delta, pilots headed for wage showdown

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ATLANTA — Delta Air Lines and its pilots union appear headed for a showdown over wage concessions after the nation's third-largest carrier reported another huge quarterly loss, warned of mounting debt and said radical changes might be needed to turn things around.

The Atlanta-based company, which operates a hub at Salt Lake City International Airport, has not been able to reach a deal with pilots to cut their pay during on-again, off-again talks over the past year, and both sides remained steadfast in their positions Wednesday as Delta posted a $387 million first-quarter loss.

The situation puts Delta on a dangerous course. At its current rate of burning cash — $500 million in the January-March period — the airline only has enough cash on hand to last until summer 2005. The carrier also has $20.6 billion in debt and a falling credit rating, making it more expensive to borrow.

Airline industry analyst Ray Neidl of Blaylock & Partners in New York said Delta is in no immediate threat of bankruptcy. But he said if the airline doesn't get an agreement on deep pilot wage cuts in the next nine to 12 months, there may not be any other alternative.

"There's no furniture left to sell," Neidl said.

Delta chief executive Gerald Grinstein told analysts during a conference call Wednesday after releasing the airline's latest loss figures that "continued losses of this magnitude are unsustainable."

Highlighting Delta's heavy debt load, Grinstein added that "our balance sheet has been severely damaged, to the point of exhaustion."

At the end of March, Delta had $2.18 billion in cash, down from $2.71 billion at the end of December.

Grinstein said "dramatic and radical changes" might be needed to return the airline to profitability. He refused to elaborate, saying a review of potential options could last until late summer.

He has said previously the carrier would fight to avoid bankruptcy.

The company is seeking a 30 percent pay cut from pilots, who are offering only 9 percent and to forego a 4.5 percent raise they are due in May, the pilots union has previously said.

Pilots union spokesman Chris Renkel said he was disappointed by the company's firm stance on wage cuts.

"We have expressed our willingness to negotiate from the very start and have not shut the door on any kind of interim talks," Renkel said. "But their tenacity in sticking to their opening position does not provide a framework for moving forward."

Delta is under assault from low-cost carriers such as JetBlue Airways and AirTran Airways, which are expanding rapidly by wooing customers with inexpensive fares. Delta has responded by selling cheap tickets, although it cannot fly profitably at such levels because of its high operating costs — a problem that has been exacerbated lately by the high cost of jet fuel.

"Even an increase in traffic isn't the answer to our company's problems," Grinstein said.

Several analysts asked Grinstein Wednesday if he would consider raising cash through an initial public offering of stock in Delta's regional subsidiaries. While suggesting that wasn't likely, Grinstein repeated that the airline hasn't ruled out any options.

Delta's first-quarter loss is equivalent to $3.12 a share for the three months ending March 31. That compares with a loss of $3.81 a share, or $470 million, in the same period a year ago. The latest loss included $4 million paid out in dividends to preferred shareholders.

Analysts surveyed by Thomson First Call were expecting a loss of $3.02 a share.

Revenue in the January-March quarter was $3.29 billion, a 4.3 percent increase from the $3.15 billion recorded in the same period a year ago.

While Delta reported $12.5 billion in debt in its earnings release, off-balance sheet debts bring the total to $20.6 billion, reflecting a 104 percent debt-to-equity ratio.

Shares of Delta were unchanged to close at $7.70 Wednesday on the New York Stock Exchange. Its shares are down more than 30 percent since Jan. 1.

Delta has lost more than $3 billion and laid off 16,000 employees since the Sept. 11, 2001, terrorist attacks.

In recent months, Delta has taken several steps to try and improve the airline's bottom line. It started a food-for-sale program on some flights and launched a redesign of its uniforms for flight attendants, airport agents and other workers.