ATLANTA — Delta Air Lines Inc., the nation's third-largest carrier, cleared a hurdle Wednesday when its pilots approved an agreement with the company that calls for $280 million in annual concessions. A bankruptcy court judge will have the final say.
The vote by the Atlanta-based airline's rank-and-file pilots was 61 percent in favor, the union said in a memo to pilots.
The agreement, which runs through 2009, would take effect Thursday, assuming a bankruptcy court judge also approves the deal. A hearing was scheduled Wednesday afternoon in White Plains, N.Y. The government's pension insurer has objected, insisting that a $650 million note and $2.1 billion unsecured claim that Delta has promised the pilots should belong to the agency if the pilots' pension is terminated as expected.
It is unclear when the court will rule. If the deal does not get final approval, an arbitration panel would again consider the company's request to reject its pilot contract so it could unilaterally impose the cuts it wants. Delta believes the deal will be approved by the court.
The deal, which replaces an interim pact agreed to in December, includes an initial 14 percent pay cut and assurances the union won't fight any company effort to terminate the pilots' pension.
In a letter to pilots after the vote was made public, Delta's top three executives said the ratification by the rank-and-file marks a new beginning for the airline.
"If we seize this opportunity rather than squander it, Delta Air Lines once again can proudly become the gold standard of the industry," the executives said.
The chairman of the pilot union's executive committee, Lee Moak, said in a statement that the agreement the pilots ratified "provides a framework for Delta to successfully reorganize and emerge from bankruptcy ready to win in today's competitive marketplace."
The Air Line Pilots Association, which represents Delta's 5,930 active pilots, has said the agreement reached in April between Delta and union negotiators is in the best interest of the airline, its pilots and its creditors. Union leaders ratified the agreement a week after it was reached. The cuts are in addition to $1 billion in annual concessions the pilots agreed to in a five-year deal in 2004.
In its objection to the new deal, the Pension Benefit Guaranty Corp. said it should get the note and unsecured claim the company has promised the pilots because the agency would be responsible for paying out benefits to the pilots up to a certain limit if the pilots' pension plan is terminated.
The PBGC made a similar objection during the bankruptcy case of UAL Corp.'s United Airlines, but dropped its opposition to the Elk Grove Village, Ill.-based airline's plan to terminate its employees' pension plans after reaching a settlement with the company that promised the agency up to $1.5 billion in notes and convertible stock in the reorganized company.
Separately, a retired pilots group had objected out of concern the Delta deal would ultimately reduce their benefits based on the pension being terminated. But their objection was resolved at Wednesday's hearing.
As part of the settlement, Delta has agreed to provide retired pilots an administrative claim of $9 million to cover a portion of certain pension benefits that the retired pilots would have gotten since the bankruptcy filing in September had the benefits not been frozen.