Delta deal raises pilot wages above competitors, trims profit-sharing
By Jeffrey Dastin and Sagarika Jaisinghani
(Reuters) - Delta Air Lines Inc has reached a tentative deal with its union to pay pilots more than competitors, while making its profit-sharing plan less generous in some cases.
The airline said late Wednesday that it will purchase 20 used and 40 new single-aisle aircraft from the Boeing Co if its pilots ratify the contract, replacing planes that are scheduled to retire through 2019.
The deal marks a slight move away from profit-sharing, which some analysts and aviation executives have called outdated and costly. It also underscores an industry shift away from flying smaller, less-efficient jets than those Delta has agreed to purchase.
The Delta Master Executive Council (MEC), part of the Air Line Pilots Association, approved the deal Wednesday. It raises hourly wages by 8 percent upon signing, 6 percent on Jan. 1, 2016 and 3 percent for each of the following two years.
Pilots at the Atlanta-based airline will vote on the contract in coming weeks, some six months ahead of the date it officially could be amended. Ratification would mark a victory for Delta as other airlines have taken years to reach union deals.
The hikes place wages 3.5 percent above American Airlines Group Inc and 13.5 percent above United Continental Holdings Inc by 2016, the Delta MEC said. By 2018, pilots on average will earn an extra $42,000 annually.
While Delta's existing contract pays pilots 10 percent of profits or 20 percent if pre-tax annual income reaches at least $2.5 billion, the tentative deal requires that Delta earn at least $6 billion before the higher, 20 percent payout begins.
Delta's pre-tax income in 2014 was $4.5 billion, excluding special items.
In a Wednesday research note, JPMorgan analyst Jamie Baker called the deal "a welcome revision to the industry's most generous profit sharing program."
He lowered earnings per share estimates for the third and fourth quarters of 2015 but inched up his 2016 estimate as the profit-sharing change "outweighs medium-term wage growth."
Ratification also triggers the purchase of 20 used Embraer SA E190 aircraft held by Boeing and 40 new Boeing 737-900ERs. It shrinks Delta's fleet of smaller regional jets to 425 from 450, according to the Delta MEC.
Despite the orders, Cowen and Co analyst Helane Becker estimated in a research note that Delta can maintain its guidance for annual capital expenditures of $2.5 billion to $3 billion.
(Reporting by Jeffrey Dastin in New York and Sagarika Jaisinghani in Bengaluru; Editing by Saumyadeb Chakrabarty and Cynthia Osterman)
