Delta Airlines 2004 Annual Report Download - page 66

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$2.3 billion of the $5 billion in targeted benefits under our profit improvement program. We have identified, and begun implementation of, key initiatives to
obtain the remaining $2.7 billion in targeted benefits, which we believe we are on track to achieve by the end of 2006.
Non-Pilot Operational Improvements
Non-pilot operational improvements are targeted to achieve approximately $1.6 billion in benefits by the end of 2006. These initiatives consist of
(1) technology and productivity enhancements, including the elimination of 6,000 to 7,000 non-pilot jobs; (2) non-pilot pay and benefit savings, including an
across-the-board 10% pay reduction for executives and supervisory, administrative, and frontline employees that was effective January 1, 2005, increases to
the shared cost of healthcare coverage, the elimination of a healthcare coverage subsidy for non-pilot employees who retire after January 1, 2006 and reduced
vacation time; (3) dehubbing of our Dallas/ Ft. Worth operations and redeploying aircraft from that market to grow our hub operations in Atlanta, Cincinnati
and Salt Lake City; and (4) redesigning our primary hub at Atlanta's Hartsfield-Jackson International Airport from a banked to a continuous hub and then
expanding this concept to our other hubs.
We recorded significant gains and charges in 2004 in connection with some of our non-pilot operational initiatives. These gains and charges include (1) a
$527 million gain related to the elimination of the healthcare coverage subsidy for non-pilot employees who retire after January 1, 2006, and (2) a
$194 million charge related to voluntary and involuntary workforce reduction programs. See Note 14 for additional information about these gains and charges.
We will record additional charges relating to our non-pilot operational initiatives and pilot cost reductions, including charges related to certain facility
closures and employee items, but we are not able to reasonably estimate the amount or timing of any such charges, including the amounts of such charges that
may result in future cash expenditures, at this time. The targeted benefits under our transformation plan do not reflect any gains or charges described in this or
the preceding paragraph.
Pilot Cost Reductions
Our pilot cost structure was significantly higher than that of our competitors and needed to be reduced in order for us to compete effectively. On
November 11, 2004, we and our pilots union entered into an agreement that will provide us with $1 billion in long-term, annual cost savings through a
combination of changes in wages, pension and other benefits and work rules. The agreement (1) includes a 32.5% reduction to base pay rates on December 1,
2004; (2) does not include any scheduled increases in base pay rates; and (3) includes benefit changes such as a 16% reduction in vacation pay, increased cost
sharing for active pilot and retiree medical benefits, the amendment of the defined benefit pension plan to stop service accrual as of December 31, 2004, and
the establishment of a defined contribution pension plan as of January 1, 2005. The agreement also states certain limitations on our ability to seek to modify it
if we file for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The agreement becomes amendable on December 31, 2009.
Other Benefits
Our transformation plan also targets other benefits through concessions from aircraft lessors, creditors and other vendors. During the December 2004
quarter, we entered into agreements with aircraft lessors and lenders under which we expect to receive average annual cash savings of approximately
$57 million between 2005 and 2009, which will also result in some cost reductions. We also reached agreements with approximately 115 suppliers under
which we expect to realize average annual benefits of approximately $46 million during 2005, 2006 and 2007.
SimpliFaresTM
In January 2005, we announced the expansion of our SimpliFares initiative within the 48 contiguous United States. An important part of our
transformation plan, SimpliFares is a fundamental change in our pricing structure which is intended to better meet customer needs; to simplify our business;
and to assist us in achieving F-9