Sept. 22 (Bloomberg) -- Delta Air Lines Inc., the No. 3 U.S. carrier, said it will eliminate as many as 9,000 jobs and reduce employee and executive pay in the first extensive plan detailing how the company expects to get out of bankruptcy.

Pay for most workers will be reduced by between 7 percent and 10 percent, and Chief Executive Gerald Grinstein will take a 25 percent pay cut, Delta said in a statement today. The plan will reduce costs and boost productivity, by adding profitable international flights among other steps, to save $3 billion annually by the end of 2007, the company said.

Delta is eliminating 17 percent of its workforce one year after deciding to cut as many as 7,000 jobs. Soaring fuel costs and competition from discount carriers such as Southwest Airlines Co. forced Atlanta-based Delta and Northwest Airlines Corp. to file for bankruptcy last week.

``It`s about time they got aggressive,`` Helane Becker, a securities analyst with Benchmark Co. in New York, said in an e- mail. ``Had they done this last year, or 18 months ago even, they wouldn`t be in Chapter 11.``

Delta will reduce its U.S. flight capacity, measured as the miles that available seats are carried, by 15 percent to 20 percent, and will increase international capacity by 25 percent by next year, the company said.

The latest plan comes in addition to $5 billion in cost reductions and revenue increases the company was targeting for next year. Delta`s pilots in 2004 provided $1 billion in annual concessions over five years as part of a turnaround plan developed by Grinstein in his first year leading Delta.

Labor Reductions

The airline, which has posted losses of almost $10 billion in the past four years, said it`s seeking $325 million in annual wage and benefit reductions from its pilots on top of previous concessions. Of about $930 million in annual labor cost cuts the company is targeting, $605 million will come from other workers, including managers.

Grinstein`s salary this year was reduced to $450,000 annually from the $500,000 he was promised when he took the job, and last year he only took half his pay. Top executives other than Grinstein will take 15 percent pay cuts.

Employees who make less than $25,000 a year will be excluded from the latest round of pay reductions, Delta said. The company began telling workers about its plans this morning, said Delta spokesman Anthony Black.

Grinstein said he expects to be a ``smaller, more cost- efficient airline`` producing profits in just over two years. The company said it will share profits with employees in the future.

``Our transformation will be sweeping and fast-paced,`` Grinstein, 73, said in the statement. ``It must be if we are to survive and thrive as a stand-alone company in control of our own destiny.``

Pensions

Delta is also trying to defer contributions to its employee pension funds by lobbying for changes to U.S. law. The company has $3.15 billion due to the funds over the next two years. Rivals UAL Corp.`s United Airlines and US Airways Group Inc. terminated their pension plans in bankruptcy, shifting the burden to a federal insurer and adding to employee compensation losses.

``I would expect, eventually, they will have to terminate the pension plan,`` New York-based Standard & Poor`s analyst Philip Baggaley said, referring to Delta executives.

Delta`s 10 percent note that matures in 2008 rose about 0.25 cent on the dollar to 16.5 cents on Trace, the bond-price reporting system of NASD. Delta shares rose 5 cents to 82 cents at 4 p.m. in New York Stock Exchange composite trading.

Fleet

Delta, which has about 2,000 flights a day, expects changes to its route network to help lower costs and increase revenue by $1.1 billion annually. The carrier expects to save $970 million annually from debt relief, lease and facility cost reductions and changes in its fleet. That includes training and maintenance savings that will result from speeding up a prior plan to eliminate four of its current 11 plane types.

The airline has already rejected leases for 40 planes that had been retired and plans to cut another 80 planes from its fleet by the end of next year. Delta`s fleet included 550 planes at the main airline, and 168 at the company`s Comair commuter unit as of Aug. 31, Black said. The company said it`s reviewing reductions for its Comair fleet also.

``As you shrink an airline, you also reduce your revenue- generating ability,`` Baggaley said. ``Obviously, they`ll try to shrink the unprofitable markets.``

Delta has grappled with how to reduce its costs enough and restructure its network to better compete with the discount carriers, including Southwest, AirTran Holdings Inc. and JetBlue Airways Corp. The competitors, which can discount fares because they have lower costs, have been growing especially in Delta`s East Coast market niche in the past five years.

Fuel

Delta`s efforts to reduce costs have been hampered by a jump in the price of fuel, the industry`s second biggest expense after labor. Jet fuel is up 81 percent this year, pushed recently by Hurricane Katrina`s destruction of refineries and pipelines.

Grinstein tried to fend off the discounters in part by expanding Delta`s discount unit Song this year. Song operates mainly on Delta routes from New York and Florida.

East Coast rival US Airways received government, court and shareholder approval to exit bankruptcy by merging with Phoenix- based America West Holdings Corp., which began switching to a low-cost, low-fare business model in 2002.

Merger?

Delta ``might be a partner in a merger but, as the case of America West and US Airways shows, at this point to be an attractive merger candidate you first have to fix the business and lower costs as much as possible,`` Baggaley said.

Eagan, Minnesota-based Northwest, the fourth-largest U.S. airline, over the past week also moved to lay off 1,400 flight attendants and 400 pilots as it reduces flight hours by 13 percent in bankruptcy. Northwest has been working with Delta on seeking pension law changes that will allow it too to delay contributions to its employee plans.

The two airlines` job cuts, along with others made at United and US Airways, bring total industry job reductions this year to about 44,100, according to Challenger, Gray and Christmas, a New York-based outplacement firm. That`s the most on an annual basis since 100,000 were laid off in 2001 following the Sept. 11 terrorist attacks, the firm said in a statement.

To contact the reporter on this story:

Lynne Marek in Chicago at lmarek@bloomberg.net.

Last Updated: September 22, 2005 16:20 EDT