Continued
In order to prepay these obligations, you took approximately $150 million of the Company's funds for the executives even when you were aware that the Company and its employees were struggling for survival and that the rank and file employees' pension fund was billions of dollars underfunded. To make matters worse, The Atlanta Journal Constitution reported that Delta's share of government financial assistance, as a result of the events which occurred on September 11, 2001, was $150 million net. We doubt the taxpayers or government would be pleased to know their entire financial assistance of $150,000,000 was used to prepay benefits to Delta's already highly compensated officers. As spokesman for the industry, you have been relentless in lobbying Congress for financial relief for all airlines, which is desperately needed. However, by spending hundreds of millions of dollars to provide financial security for the officers, in spite of the threat of insolvency, and to further build their wealth in a post-Enron environment while Delta and the entire industry are in financial crisis and begging for government assistance, is not something the public nor the government would look upon favorably. Indeed, as noted earlier, the action is unique. We believe this will be damaging to your personal reputation and could have a very negative impact not only on Delta, but on the industry as a whole.
During the past 14 months you have required Delta employees to make many sacrifices. They have accepted reductions in their benefit programs, job reassignments and furloughs. Asking them to make these sacrifices while you and the other officers quietly spent millions of dollars prepaying your own benefit plan is morally wrong and violates the trust of Delta employees, retirees, and stockholders.
As was mentioned earlier in this letter, we have learned from pension/ERISA experts, financial professionals, bankruptcy attorneys and government agencies that based on Delta's current pension liability and financial situation, in the event of a bankruptcy at Delta, many retiree pensions would be significantly reduced. We will not go into the details as your finance and human resource department should be quite familiar with this issue. It appears that all retired Officers/Directors' nonqualified pension benefits, which in some individual cases represent as much as 85 percent of their total pension, would go away and would be treated as unsecured debt. Additionally, the qualified pension would also be reduced to reflect the reality of the shortfall in the pension fund, with enhanced benefits (credit for age/service provided in early retirement packages) and benefits over PBGC maximum of $28,000 - $44,000 per year being eliminated first. Therefore, most all retired Officers and Directors regardless of their exposure in the unqualified plan would have their pensions reduced, as would all retired non-pilot employees, particularly those who have taken early retirement packages over the last ten years.
In order to summarize the issues here, you have been concerned enough about bankruptcy to take care of yourselves by paying all of your accrued benefits in cash now (and even causing the Company to "gross up" the prepayment by paying the income tax liability as an additional benefit), yet you have encouraged employees to take early retirement packages knowing full well that they would not receive the promised benefit if the Company goes bankrupt. Additionally, you have made no attempt to inform the thousands of employees who have already retired of the impact of insolvency on their pensions, particularly early retirees.
We assume that you will have to mention the dollar cost of these payments in the proxy for 2003. Based upon the previous limited disclosures, we assume it will be mentioned as little as possible. It will be difficult to characterize this publicly as a retention issue when you have already spent millions of dollars on bonuses for officers/directors, established a bonus program for those staying for a few years, and have issued two stock options within the year at deflated prices to be vested in one year. Additionally, many of the current Officers/Directors have less than six years of service but were given pension credit for as much as twenty years of service when they joined the Company. They are all highly paid, many receiving significant signing bonuses, restricted stock, large stock option grants, employment contracts and a multitude of other perks and expenses associated with their employment and positions. They are hardly destitute or in need of special, unusual pension payments not afforded to other employees. Just characterizing payments as made for "retention purposes" does not shield the payments from creditors' claims. If such were the case there would be no need for lengthy insider preference periods as well as the imposition of very high levels of fiduciary responsibility to creditors on officers when a company is in the vicinity of insolvency.
We are concerned that when the proxy comes out, you will try to characterize the payments made to the officers' individual trusts as being similar to the cash balance plan for current employees and done early as a precursor to their plan change. The fact that the cash balance plan results in LOWER pensions on average (how else would you reduce pension costs for the rank and file by $500,000,000?) while you spent millions of dollars to make payments to or for officers based on the FULL VALUE of their accrued benefits (including a gross up to provide money for the executives to pay taxes they would have otherwise had to pay themselves), shows that there is no comparison to the employee plan. Any attempt to try and make that comparison will further erode your credibility when the details of your payments are revealed.
Throughout Delta's history, officers have always had their incentives tied to making the Company successful. The payments you have made in satisfaction of the officers' accrued pension liabilities as well as the Bonus Plan for three years will shelter the officer if the company he/she serves fails. It would appear bankruptcy is no longer considered a last resort, but will now become just another strategic plan alternative to eliminate costs (including pension liability) and force pay concessions. We see little incentive now for you or the present executives to attempt to avoid bankruptcy after the insider preference period expires in February.
In summary, it seems unconscionable that thousands of employees who have worked and sacrificed to build the Company, which created a career opportunity for you and the other officers, have been left to fend for ourselves, while you and the current officers continue to use Company funds to build your wealth and future financial security at the expense of all other Delta stakeholders. At a recent analyst conference you were quoted as saying "the airlines are not seeking special treatment, but an end to special treatment". In short we are asking you to end the special treatment for yourselves.
We recognize that our mutual and ultimate goal must be to secure the long term viability of Delta Air Lines and to avoid bankruptcy. We therefore respectfully implore you and your management team to accelerate and move decisively to execute your recovery business plan and make those difficult, but absolutely necessary, decisions that will reverse the unacceptable and unsustainable, financial hemorrhaging.
Delta's competitive advantage has always been its people. The Delta family made up of thousands of retired and current employees is poised to stand shoulder to shoulder with you to do whatever is necessary to avoid bankruptcy and secure Delta's future. We call upon you to lead us with a commitment of SHARED sacrifice and risk.
For the reasons we have articulated in this letter, we are asking you to immediately rescind the pension change for current officers and return the money to the Company and share in the risks and sacrifices of the other employees and retirees. We believe that to do otherwise will cause harm for our Company and will hinder your ability to seek the trust and cooperation of the government, shareholders, retirees and employees in the future. In short, we urge you to do the right thing.
We request that you or Bob Harkey communicate your response to the issues expressed in the letter by February 5, 2003 to Dean Booth, the attorney who represents the undersigned partial list of retired officers/directors. Otherwise, we will be compelled to consider further action. Very truly yours,
Robert Adams
H.C. Alger
Bill Berry
Marty Braham
Pete Caldwell
Jim Callison
Robert Coggin
Richard Colby
Bob Cowart
Russ Crawford
John Davis
W.E. Doll
Doug Dunn
David Greenberg
Julius Gwin
Whit Hawkins
Russ Heil
John Hoover
John Hume
Dave Huss
Marvin Johnson
Julian May
Rex McClelland
Robert Oppenlander
Foy Phillips
Jenny Poole
Tom Roeck
Bobby Suggs
C.A. Thompson
Maurice Worth
cc: Ed Budd, Chairman Personnel and Compensation Committee
Board of Directors
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