Delta Air To Sublease Southwest's Boeing 717 Fleet

Date : 05/22/2012 @ 1:23PM
Source : Dow Jones News
Stock : Southwest Airlines Company (LUV)
Quote : 59.52  0.7 (1.19%) @ 4:12PM

Delta Air To Sublease Southwest's Boeing 717 Fleet

Delta Air Lines (NYSE:DAL)
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Delta Air Lines Inc. (DAL) will begin taking delivery of Boeing Co. (BA) 717 aircraft as early as 2013 and has agreed to sublease all 88 of Southwest Airlines Co.'s (LUV) Boeing 717s over three years.

Delta reached a tentative labor agreement with the Delta Air Line Pilots Association. The contract, which covers more than 12,000 Delta pilots, will be presented for ratification through June 30.

The agreement modifies the profit-sharing program for pilots to 10% of profits from 15% on the first $2.5 billion of profits, effective Jan. 1. The plan will continue to pay 20% of profits above $2.5 billion.

A voluntary early-retirement option recently offered to Delta's other employee groups will also be available to Delta pilots upon ratification of the tentative agreement.

If ratified, the agreement will accelerate Delta's domestic fleet restructuring strategy.

To that end, Delta said it will lease 88 Boeing 717 aircraft currently in service at Southwest's AirTran Airways Inc. unit, primarily to replace 50-seat regional jets and some older DC-9 aircraft still in service.

The agreement in principle with Southwest also gives Delta the flexibility to acquire up to 70 larger two-class, 76-seat regional jets as the Boeing 717 aircraft are delivered to Delta.

Delta currently operates 255 larger two-class regional jets and the fleet will be increased to 325 aircraft.

"These actions pave the way for us to restructure and upgauge our domestic fleet, which will lower our costs, provide more pilot jobs and improve the onboard experience for our customers," said Delta Chief Executive Richard Anderson.

The tentative agreement between Southwest and Delta would transfer the 717s over three years at a rate of about three aircraft per month beginning in mid-2013 with completion in 2015.

Southwest said it won't release any additional details about the deal at this time.

"This is a very complex transaction that requires time and close coordination with multiple parties," said Southwest Chief Operating Officer Mike Van de Ven. "While we do have a tentative agreement with Delta, final details must be completed with all parties before a binding agreement between Delta and Southwest can be completed."

--By Melodie Warner, Dow Jones Newswires; 212-416-2283; melodie.warner@dowjones.com

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