Business

Cost cuts essential to Delta, court told

NEW YORK - Delta Air Lines Inc., which lost $2.6 billion in the first nine months of this year, needs the $3 billion in annual cost savings from its reorganization plan to survive, Chief Financial Officer Edward Bastian told a bankruptcy court on Monday. He also said the company is not prepared for a strike by pilots and that such a strike would be "devastating." But U.S. Bankruptcy Judge Prudence Carter Beatty said Delta may have been wrong to spend $2.4 billion to buy back its own shares before it filed for bankruptcy in September. "It is a question of if you had that money rather than had spent it that way, you might not be in the position you are in," she said. Beatty added that the buyback may have been undertaken to placate Wall Street's financial community. "I'm buying something worth nothing to me in order to make the stock-market price look good," she said. Delta's board of directors adopted two stock-option plans that were approved by shareholders in 1996. The shareholders agreed to the plans with the caveat that the airline buys back shares to mitigate any loss in share prices when employees exercise stock options. The buybacks continued until 2000. "In my opinion, it (the cost reduction plan) is absolutely necessary," Bastian told the court during the third day of a hearing on a Delta request to void its contract with pilots and impose $325 million in wage cuts. "We are losing cash at a fairly alarming rate. If we don't stop losing cash, we won't make it," he said. The Air Line Pilots Association, the union representing the pilots, has offered $90.7 million in concessions and has threatened a strike if the court grants Delta's request. Delta maintains such a walkout would violate the Railway Labor Act. Asked if Delta had considered the possibility of a strike by its pilots, Bastian said: "It has no operational plans (set in place in case of a strike). … We think if a strike were to occur, it would be devastating." Atlanta-based Delta is seeking cuts from its pilots to help offset rising fuel costs and the impact of stiff competition from low-fare competitors. Delta filed for Chapter 11 on Sept. 14.