Delta Seeks Pilot Pay Cuts in Bid to Avoid Furloughs

Delta Air Lines (NYSE: DAL) is proposing a cut to guaranteed minimum pilot pay in an effort to avoid furloughs as the airline tries to balance its need to shrink with a desire to preserve labor harmony.

Earlier in the week, Delta reported second-quarter revenue was down 88.2% year over year due to the COVID-19 pandemic, and warned it expects to report third-quarter sales that are down at least 75%. So far, the airline industry has avoided layoffs thanks to government payroll protections, but that assistance expires at the end of September, and Delta and others have warned they will have to shrink considerably once it does.

A Delta jet takes off.

Image source: Delta Air Lines.

On an earnings call, CEO Ed Bastian said that more than 17,000 of the airline's 90,000 employees had signed up for buyouts or early retirement, but that the airline will still need further cuts.

'We are hopeful that we can accomplish the vast majority of the head-count changes we need through these programs, minimizing, if not eliminating, the need for involuntary furloughs," Bastian said. "This will require creativity and collaboration across all of our work group."

The pay cut proposal is one example of that creativity. In a memo to the Air Line Pilots Association, Delta said that if the union agrees to cut the pilots' minimum guaranteed pay by 15%, furloughs can be avoided for at least a year.

"Our approach is to spread the work of a smaller airline among all our pilots to preserve all jobs -- that would be unheard of in our industry," Delta senior vice president of flight operations John Laughter wrote in the memo, which was first reported by CNBC.

The union had no immediate response. Labor groups are typically loath to accept cuts to minimum pay that can take years to undo, but the proposal in this case might offer benefits for both the airline and pilots.

Delta is trying to shrink while preserving a strong working relationship with its most important union, and keeping its pilots in house would also allow the airline to react quickly if demand returns ahead of the company's expectations.

For pilots, the global nature of the travel downturn might make the proposal to preserve jobs palatable. During a normal downturn, pilots who lose their jobs can look to other airlines or overseas for work. But with airlines everywhere shedding jobs, there are few good options for pilots who are furloughed right now.

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Lou Whiteman owns shares of Delta Air Lines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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