Delta Airlines may write off nearly $3.3 billion on buyouts and early retirements

Delta Airlines (DAL) is urging its employees to opt for buyouts or early retirement as a means of slashing labor bills. According to the airline company, at least 17,000 employees have already signed up to voluntarily leave Delta. Other airline companies have also taken up this initiative to ease labor bills.

Delta made its announcement on Wednesday, saying that it expects to take a charge of about $3.3 billion from “voluntary separation agreements” with its employees. The impact of the coronavirus pandemic hit the airline industry hard that many airline companies have resulted in the same. Many airline companies are urging employees to take buyouts and early retirements to help ease the burden on costs and other financial impacts caused by the pandemic.

Airline companies are forbidden from laying off employees through September 30 based on the terms of the $25 billion federal aid to support the industry with employee payroll.

On Tuesday, Delta posted a net loss of $5,7 billion for the second quarter, making it the company’s biggest loss since 2008. As a result of this, the carrier has decided to halve the number of flights it initially planned to have for next month, as the coronavirus pandemic continues to ravage the airline industry.

Delta's recent earning report

• Delta Airline Q2, Adj Loss (4.43) v (4.07) EST. 

“Demand has stalled as the virus has grown, particularly down here in the South, across the Sun Belt, coupled with the quarantine measures that are going in place in many of the Northern states,” said Delta CEO, Ed Bastian.

Delta also forecast its third-quarter revenue to be no more than a quarter of what it generated last year, $12.56 billion. The carrier’s shares fell 2.7% to end at $26.11.

In an earnings call on Tuesday, Delta CEO Ed Bastian said that over 17,000 of its 91,000 employees have already signed up. The separation packages include cash severance, free flights, and other extended health care benefits.

“Certain of the programs remain open, and these represents our best estimates based on the employees who have signed up to date,” the airline company said.

In a Wednesday filing, Delta stated that it was certain to record a $2.7 billion to $3.3 billion charge from its programs in the current quarter, giving out about $600 million in cash payments to employees who have signed up for the separation program.

Other airline companies that offer similar programs for their staff include Southwest Airlines, United Airlines, and American Airlines. United Airlines has warned that there was a possibility of dishing out furloughs to 36,000 or 40% of its employees if there weren’t enough volunteers by October. While American Airlines has a target of reducing about $20,000 of its staff by this fall.