Delta to Retire Boeing 777 Jets, Warns Pilots of Overstaffing
Delta to Retire Boeing 777 Jets, Sees Up to $1.7 Billion Charge
(Bloomberg) -- Delta Air Lines Inc. is retiring its fleet of Boeing Co. 777’s and warning its pilots of massive overstaffing as the carrier grapples with the unprecedented collapse in travel demand caused by the Covid-19 pandemic.
Removing 18 of its biggest aircraft by the end of the year would leave even more pilots without work as almost all customers stay home. With half of the fleet already parked, Delta said it would have 7,000 more pilots than it needs by the fourth quarter. That’s about half of the company’s aviator corps.
The airline will take an accounting charge of as much as $1.7 billion for the retirement of the 777s and other previously parked smaller planes, according to a regulatory filing Thursday. The carrier said it will rely on its “more fuel-efficient and cost-effective” Airbus SE A350-900 and A330 planes to serve long routes.
Delta joins American Airlines Group Inc. in retiring entire aircraft models from its fleet, an indication of the breadth of changes carriers are making to reduce operating costs amid revenue declines of as much as 95% and flying reductions of 85% or more. The capacity cuts mean Delta will need fewer pilots as the pandemic forces it to transform into a smaller airline.
“While we know that we will eventually see growth and the return of our customers, our challenge is predicting the pace and timing of this return -- which will be slower than any of us hoped,” John Laughter, Delta’s senior vice president of flight operations, said in a memo to pilots viewed by Bloomberg News. He called the 7,000 unneeded pilots “an alarming number.”
Ripple Effect
Delta’s retirement of the 777s also “will hurt” American and United Airlines Holdings Inc., said George Ferguson, a Bloomberg Intelligence analyst. By labeling the larger planes have no use in today’s market, it potentially reduces their value as the airlines seek additional financing using the aircraft as collateral, he said in a Bloomberg blog on airlines Thursday.
“Retiring a fleet as iconic as the 777 is not an easy decision,” Delta Chief Executive Officer Ed Bastian said in a memo to employees. “The 777 played an important role with Delta since 1999, allowing us to open new long-haul markets and grow our international network as we transformed into a global airline.”
Bastian said the retirement of its biggest Boeing jets would further Delta’s “principal financial goal” of slashing its daily cash burn to zero by year’s end from the current level of $50 million. Retiring a fleet type cuts the expense of training pilots and mechanics and maintaining a separate inventory of parts.
Union Reaction
The Air Line Pilots Association, representing 14,000 Delta aviators, said the carrier has not worked with the union on the voluntary measures it’s proposed to immediately reduce cash burn and achieve savings targets.
“Management should first discuss and consider ALPA’s proposals before the company heads down a path of drastic cuts, which will cost more in the long run to execute, and harm thousands of Delta pilots and their families,” Chris Riggins, a union spokesman, said in a statement.
The airline expects the number of excess pilots to decline to 2,500 to 3,500 in the third quarter of 2021, which is the summer travel season. The number accounts for expected pilot retirements.
“We are looking at all options to minimize potential furloughs and offset impact on our pilots through additional voluntary programs and cost-saving measures,” Laughter said.
In another cost-cutting effort spurred by the Covid-19 pandemic, the company said the number of employees who have agreed to take voluntary leave has now surpassed 41,000.
Delta fell 1.1% to $19.19 at 1:10 p.m. in New York as the broader market rebounded from losses earlier in the day. The airline’s shares tumbled 67% this year through Wednesday, while the S&P 500 dropped 13%.
The same week that five U.S. senators introduced legislation to give customers full cash refunds for any flight canceled during the coronavirus outbreak, Delta said it had returned more than $1.2 billion to passengers since the pandemic began. The amount includes $160 million so far this month, Delta said.
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