Internal Memorandum

Based on talks with many of you during my stops across the Delta system in the past three weeks, I know that executive compensation remains a controversial issue. As we move into a new year, it is important for us to clear the air on that topic so we can focus all our energy on the urgent job of making Delta strong and profitable again.

With that in mind, this memo has two purposes. First, it will give you my early thinking on how Delta should address executive compensation in the future. Second, because I understand the value you place on clear, timely communication about these matters, it will outline how we intend to handle two previously reported executive compensation programs that require action in the near future.

Executive compensation is a tough issue during bad times. On one hand, as with the front-line and all other work groups, Delta needs a competitive compensation program to attract, retain and motivate a highly skilled team. On the other hand, an executive compensation package that includes normal elements such as earned incentive pay (sometimes called “bonuses”) can seem inappropriate when the company is losing money and other employees are making sacrifices. Keeping these conflicting needs in balance presents a difficult but necessary challenge.

That said, here are three early thoughts regarding executive compensation:

• First, all components of executive compensation should be competitive, performance-driven and closely aligned with shareholder value and the long-term interest of the company.
• Second, when sacrifice is required, it should be shared among all employee groups.
• Third, any cash incentive awards should reflect the performance of the company and the individual, and should take into account profitability and shareholder value.

Work is underway to develop a revised approach to executive compensation at Delta which reflects these principles. We intend to discuss this with the Board of Directors in January.

Moving to my second point: As was reported in the 2003 Proxy, a retention program to maintain stability in Delta's leadership team was established in January 2002 for officers (vice presidents and above). You will recall that early 2002 was a time of unmatched danger and uncertainty for our company and our industry. The intent of the program was to keep the leadership team in place. Continuity of management at Delta in the immediate aftermath of 9/11 has been important in terms of maintaining access to capital markets.

The retention awards issued in early 2002 become payable to participants in January. A number of officers, however, have asked to defer all or part of the awards based on the current conditions facing the company. Others, however, may not now be in a position to make such deferrals. I fully understand and respect both situations. In an effort to respond to those who would like to defer all or part of their retention payments, we have established a new program.

Under the terms of this voluntary program, deferred awards will be paid once Delta has been profitable for one full year or in 2007, whichever comes first. The program also will provide payment to participants should they leave Delta, since the rewards have already been earned. In any case, the deferral option will not result in any increase of the amount of award paid to the recipient. Also, the company will maintain the confidentiality of the individual decisions. Please remember also that Leo Mullin and Fred Reid have rescinded their retention awards, and Michele Burns, Vicki Escarra and Bob Colman have agreed to defer their awards over the next three years.

While there is no perfect solution, I believe this is the most appropriate response under the current circumstances.

On a different executive compensation matter, the Board has decided not to award 2003 annual incentive compensation to Delta officers, even if earned by meeting the performance goals established at the beginning of the year. As a result, no annual incentive awards will have been paid to officers in two of the past three years. This reduction in total compensation for officers is in addition to the 8% pay cut earlier in 2003. Leo and Fred took even deeper pay cuts.

The Board has decided, however, to consider at its next meeting the payment of annual incentive compensation for other eligible employees below the vice president level, if earned. The Board’s decision to consider the matter is based in large part on its awareness that compensation for this group generally runs well below the competitive marketplace.

My visits with you around the system have provided new insights while also confirming my faith in the wisdom and commitment of the Delta team. They will continue in 2004 and beyond. Thank you for your candor, your ideas and your enthusiasm for the hard work ahead. We have talked about difficult issues like the one discussed in this memo, but those discussions have been professional and focused on moving ahead with what is best for our company.

If we don’t see each other until after the New Year, you and your family have my best wishes for a very happy holiday season.

Jerry Grinstein

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