Union rejects contract; Delta drops order for jets

Delta Air Lines Inc. abandoned plans to add at least $4 billion of Boeing Co. and Embraer SA jets after union pilots rejected the contract needed to trigger the deal.

"Those orders will be canceled," chief executive officer Richard Anderson said Wednesday on a conference call without elaborating. He spoke after Delta posted a second-quarter profit of $1 billion that beat analysts' estimates and slowed growth in seating capacity.

Delta said that its Trainer oil refinery in Delaware County accounted for $90 million of the airline's quarterly profit. The refinery, operated by Delta subsidiary Monroe Energy L.L.C., recorded a $86 million profit in the first quarter this year.

"Over the last four quarters, the refinery has produced a cumulative profit of $300 million," Delta chief financial officer Paul Jacobson said during a conference call Wednesday on the company's earnings.

The Atlanta-based airline bought the former ConocoPhillips refinery in 2012 for $150 million as a source of discounted jet fuel.

Meanwhile, Delta's decision erases the purchase of 40 Boeing 737-900ERs and 20 Embraer E190s, which the airline linked to ratification of the proposed contract. The Air Line Pilots Association, whose members at Delta voted almost 2-1 against the accord, declined to comment on Anderson's remarks.

Analysts had hailed the proposed contract as a sign of labor peace, six months ahead of the January start date for new terms at the least-unionized major U.S. airline. The rejection was a rare sign of friction between management and pilots at a carrier that otherwise has among the best labor relations in the industry.

Delta included the planes as a sweetener because the E190s would have been a new, smaller class of aircraft for the carrier's main jet operations.

While the E190 might have created jobs, it came with a lower, "second-tier" pay scale, said Tim Caplinger, who leads a startup union seeking to replace ALPA. Some pilots also were concerned that the jet would replace some of Delta's older mainline planes, rather than adding to the fleet, he said.

"Delta is free to bring those airplanes if they'd like, and we're not concerned about their choice to reject them at this time at those low B-scale pay rates," said Caplinger, head of the Delta Pilots Association.

Scrapping the plane deal capped a busy day for Delta. Besides reporting earnings, the world's third-largest airline slowed growth in seating capacity for the rest of 2015 and forecast that revenue for each seat flown a mile would fall more than some analysts had estimated.

Source: Philly.com