Delta Airlines Says Pilots Reject Tentative Contract

GOL and Delta Air Lines strengthen strategic alliance.

Delta Airlines Inc. (NYSE:DAL) has said that its pilots have rejected the tentative agreement, throwing the labor deal and the airline’s plan into doubt in purchasing extra orders from Boeing Co. Nearly 65% of the pilots have rejected the contract, when 97% of eligible pilots voted.

The contract’s rejection proved to be a mixed bag for the airline, as the company’s share rose by as much as 5%, when hourly pay was raised to 8% as part of signing of the tentative agreement, which has shaved off third quarter earnings by as much as 10 cents to settle at $1.66.

In the meantime, Delta said that it would purchase a combination of 20 used and 40 new aircraft from Boeing to maintain its supply of planes for the ones that are scheduled to be taken off service till 2019, once the new contract is ratified, since the new orders were not confirmed just yet. Boeing has been trying to finalize the order of the aircrafts for months.

Pilots opposed the agreement because the proposed contract only provides a small gain in the face of Delta’s rising profits and the profit sharing agreement will be sacrificed to make way for higher wages, on top of changes in sick leaves that has offset the gains. The Delta unit of ALPA is likely to convene on July 21 in order to determine the next step and chalk out a strategic plan.

While the news may be positive for investors, it serves as a setback to Delta, which has a history of concluding contracts in advance ahead of the schedule, and CEO Richard Anderson warns of uncertainty following the failure to renew the contract.

The current contract is in place till the end of this year, which will remain even if the deadline is missed, as has been the case with Delta’s competitors. Reportedly, both — the pilot and the management — supported the agreement.

Meanwhile, the Atlanta based airline says that it has entered into a strategic agreement with GOL Linhas Aereas Inteligentes, the largest low-cost and best-fare airline in Latin America, which will see the former extend a guarantee loan worth more than $300 million to be arranged by third party in return for commercial cooperation agreements. The mutual cooperation is expected to benefit both organizations.

Delta Airlines’ stock price ended the day at $42.61, a massive gain of more than 4% from the previous day, despite the deadlock between both sides.

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