Leo Mullin Shares the Pain -- a Lot of Pain

[Note: the company estimates that the total value of Mr Mullin's voluntary pay cut is over $9 million. Here is his statement --ed.]

To: All Delta Employees

From: Leo F. Mullin, Chairman and Chief Executive Officer

Date: April 3, 2003

Subject: Executive Compensation

Following the release of Delta's proxy statement at the end of March, much attention by the media and within the company has been focused on the subject of executive compensation. Today, I would like to address this issue with you directly, beginning with the context in which the Board of Directors made the decisions described in the proxy statement, over the course of 2002. I would also like to share with you the actions I have taken in regard to my own compensation, given the dramatic ways in which that context has now changed.

Let me begin by noting that Delta's proxy statement, which outlines the Board's executive compensation decisions during 2002, was issued on March 25, 2003. The date of issue was set in order to comply with Security and Exchange Commission requirements for distribution prior to our April 25 annual shareholders meeting. However, the actions described in the proxy statement occurred over the full course of 2002, with many of those actions rooted in the events and the aftermath of September 11. As the Board explains in the proxy statement, a key priority in response to the national and industry crisis following 9/11 was to maintain a management team "capable of responding effectively to the extraordinary challenges," including programs that would retain and motivate the team members.

Among other actions, the Board established demanding performance goals for Delta's executive team, placing primary emphasis on ensuring adequate liquidity and drastically reducing the daily "burn" of cash (generally defined as the amount by which costs exceed revenue). The Delta team succeeded on both counts. Consequently, Delta is the best positioned hub-and-spoke carrier in the industry, a view supported by reports from many Wall Street analysts. Because the key goals were met, the Board, in January 2003, approved the final 2002 incentive awards, as the proxy statement details.

Also as part of its effort to retain Delta's management team during the extraordinary challenges ahead, the Board in January 2002 established a Special Retention Program, as discussed in the proxy statement. This program provides potential cash awards in 2004 and 2005 for Delta executives, tied to both retention and performance goals.

In these and every other executive compensation program outlined in the proxy statement, the Board has consistently acted in the best interest of Delta Air Lines, meeting all legal and ethical requirements and expectations at every point. The decisions in regard to executive compensation were fully appropriate in the context of the time in which they were made.

However, the reality of the airline industry is that the context changes rapidly. Concerns we are now facing were not part of the environment when those earlier decisions were made, or their importance has been magnified, including issues related to:

• Impact of the War in Iraq
• Continuing, deeper than expected plunge in revenue and traffic
• Increased competitive concerns as United and US Airways restructure under bankruptcy protection.
• Further competitive pressure as American Airlines manages to reorganize outside of bankruptcy -- and as others (most recently Air Canada) declare Chapter 11.
• Need for immediate action in Washington to provide federal relief from post-9/11 security costs and tax burdens.
• Competitive requirement that Delta's labor costs be brought in line with that of the restructuring carriers.

With this said, I understand the concerns that have been raised in the current context. Most importantly, I want to provide a basis for moving forward so that we can resume our focus on the crucial core business and strategic issues we face. Hence, I have chosen to take the following steps:

• Reduce my salary rate by 25 percent (to $596,250), down from the beginning of year salary rate ($795,000); this reduction includes the 10 percent salary rate reduction taken earlier this year.
• Not accept any Annual Incentive Pay that might be awarded to me for 2003 performance.
• Rescind any Retention Award payment I might be eligible for in 2004 and 2005.
• Rescind the stock-based awards associated with the renewal of my five-year contract (signed November 29, 2002), with a minimum estimated Black-Scholes value of $5.5 million.

As Delta's CEO, I believe it is appropriate for me to take these steps. Also as Delta's CEO, I believe it is absolutely essential for the welfare of our company that I continue to meet the requirement, using a competitive compensation program, to attract and retain a highly motivated executive team. I am enormously proud of the team we have assembled, and fully confident of their ability to meet the challenges ahead. Most recently, they have confirmed their commitment to shared sacrifice with the salary reductions announced earlier this year. As with the entire Delta team, their continued support is absolutely invaluable to me and to the company as we move forward through the demanding days ahead.

In closing, let me say that while the specifics of this decision required careful thought and consideration, what became clear as I worked through the process was that there was no absolutely correct approach or set of actions. But, in the current circumstances, the steps I am taking feel right to me. I hope you will agree.

Leo Mullin

FMI: www.delta.com