And then there was one.

Now that Northwest Airlines ( NWACQ) has reached a tentative contract agreement with its pilots, just one of the six legacy airlines remains stymied in its efforts to reduce pilot costs and restructure -- Delta Air Lines ( DALRQ).

It might have a tougher time than any of its peers.

At the moment, Atlanta-based Delta and its pilots await the March 13 start of meetings by a three-member arbitration panel, which will determine whether the country's third-largest airline has the right to impose new contract terms. The two sides agreed to the panel's creation as an alternative to having a bankruptcy court judge make the decision.

Delta is seeking $305 million in annual cuts, while the union is offering about $140 million. In recent weeks, the numbers have been inching closer, and negotiations are continuing. Although four legacy carriers have threatened to impose new contracts on their workers, none has done so.

Last Friday, for instance, the threat of a pilots' strike brought Northwest and its pilots together. On the same day, Delta CEO Gerald Grinstein told reporters gathered at a public event that "Delta is cooked" and will not survive if the pilots strike, the Associated Press reported.

Trailing the Herd

So far, UAL ( UAUA) unit United Airlines and the old US Airways have won labor settlements from all of their major unions in bankruptcy court. Northwest has won tentative settlements, which now await ratification by union members, from three major unions. The fourth union led 4,400 mechanics out on a strike last summer that resulted in job losses for most of them.

Continental Airlines ( CAL) and AMR ( AMR) unit American Airlines have followed a different course of avoiding bankruptcy, seeking consensual cost-saving arrangements with their unions and somehow managing to preserve their expensive pension plans.

Delta has been the slowest to get things done.

In late 2004 the airline and its 6,000 pilots reached agreement on a five-year deal to reduce pay and benefits by $1 billion annually, including an immediate 32.5% annual pay cut. Last December, the two sides agreed to added interim pay reductions of about $150 million. Additionally, Delta has stopped making contributions to its pension funds, although it hasn't said whether it will seek to terminate those funds.

Delta spokesman Bruce Hicks said the airline has told the pilots that the pension plan "is at grave risk" and likely to be ended, either by the airline or the federal government's Pension Benefit Guaranty Corp. A principal issue, he said, is that the fund has been depleted over the past two years by $1.5 billion as Delta pilots take early retirement. To partially offset the loss, Delta has offered the union a long-term interest-bearing note for $330 million, he said.

Nevertheless, the course of pilot talks so far doesn't seem conducive to getting a deal, says Mike Miller, a partner in the consulting firm Velocity Group LLC, which has advised Delta in the past.

"A Delta pilot agreement is going to be very difficult to get right now, because the pilots feel they've already given enough and because of the talk of ending pensions," Miller says. "Delta has said for several years that it wants to keep the pensions. It used that as a tool to get concessions last year and the year before. But now they're saying the pensions need to be done away with, as well."

Delta faces other problems. In particular, its revenue per available seat mile of 9.33 cents is the lowest of any major carrier. Perhaps Delta's biggest cost problem is that AirTran ( AAI) keeps ticket prices down in its Atlanta hub. Meanwhile, Delta's cost per available seat mile, excluding fuel and other one-time expenses, is a relatively high 7.71 cents.

"A pilot deal is only one piece of the puzzle for Delta," Miller says. "They have about 100 more pieces, including flight-attendant costs, maintenance costs, and whether they will have any sort of fuel-management strategy. If that pilot deal was done today with the numbers on the table, Delta would not still be able to compete with other carriers their size. Competitive carriers have lowered costs to a huge degree, while Delta has not."

Pointed Words

Since January 2001, Delta has lost $12.6 billion, including $3.8 billion in 2005. Excluding reorganization and special items, the full-year loss was $2.2 billion. The airline lost another $300 million in January, but without restructuring items, the loss would have been $213 million.

Much of Delta's strategy to improve revenue has focused on expanding its international flying. The airline has added or announced 50 new international routes in the past year, and says it will offer more trans-Atlantic flights in 2006 than any other airline. But many of Delta's strategic moves have been scorned by its competitors.

Executives at Continental have been particularly outspoken. On an earnings conference call last month, Continental CEO Larry Kellner questioned Delta's strategy of broad international expansion. "Delta is using their bankruptcy advantage to aggressively expand internationally," Kellner said. "They're taking more risks than I would if I had their execution capabilities, but that's their decision."

At last month's JP Morgan airlines conference, Continental President Jeff Smisek attacked the simplified pricing structure that Delta introduced in January 2005. "I still think simplified fares are stupid and I think Delta got what it deserved." Smisek said, apparently referring to the airline's bankruptcy filing. Delta's move to cease requiring a Saturday-night stay to get a lower fare was "criminally insane," he said, adding that perhaps "Delta needs a little adult supervision."

Also at the conference, AirTran CEO Joe Leonard questioned Delta's strategy of trying to compete by matching the low-fare carrier's pricing on certain routes.

"We much prefer a Delta trying to make money than one that really doesn't care about making money," he said. "If they return to profitability, that's fine. If they take their lower costs and say 'let's try to kill AirTran,' which is what they've been trying to do for the last seven years, they'll lose hundreds of millions of dollars."

Leonard also criticized Delta's response to AirTran's announcement that it will begin seasonal service between Atlanta and Seattle. In January, Delta said it would match AirTran service with regional jets on routes from Orlando to five cities, like Moline, Ill.

Though declining to respond specifically to competitors' criticism, a Delta representative said the airline expects to emerge from bankruptcy and return to profitability in 2007.

"While significant hurdles remain, Delta has made enormous progress in less than six months since filing for bankruptcy," said spokesman Anthony Black. "We plan to implement initiatives intended to achieve 70% of a targeted $3 billion in additional annual benefits by the end of this year. These benefits are the result of extensive, company-wide changes."

Aviation consultant Mike Boyd agreed that while Delta still has work to do, its prospects are good. "Keep in mind they are a little bit behind," Boyd said. "Mr. Grinstein picked up a difficult situation when he took over. He had to pick up an ocean liner that had come to a dead stop. But once they get the pilots in line and make the necessary fleet adjustments, they will be off and running."

Delta clearly has a lot of convincing to do. At last week's FAA Forecasting Conference in Washington, Jeff Green, manager of route planning for JetBlue Airways ( JBLU), echoed Leonard in questioning Delta's strategy of flying small regional jets in AirTran's Orlando markets.

Later, in discussing AirTran's financial prospects, Green used a slide on which he had written that one variable is "a stronger DAL." But he commented: "I guess I should have put a question mark next to that."

As originally published, this story contained an error. Please see Corrections and Clarifications.

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