ACS To Pay Delta Air Lines More Than $7.5 Million To Settle Contract Dispute

Outsourcer Affiliated Computer Services has agreed to pay Delta Air Lines more than $7.5 million dollars in cash to settle disputes arising from ACS's performance on a contract to provide the bankrupt airline with human resource support, according to a court document.

The document, filed Thursday in federal bankruptcy court in New York, states that ACS has agreed to make two cash payments to Delta in the amounts of $6,570,000 and $1,103,211 "in settlement of certain disputes regarding Affiliated's performance of the services."

The document, a motion filed by Delta seeking the court's authorization to amend its outsourcing contract with ACS, states that the amounts are net of $1,925,000 in fees ACS charged to Delta for services through September 2005.

"The settlement is a result of past issues that arose during the implementation of the contract that have since been resolved," says an ACS spokesman, who declined to provide more specific details. The spokesman says ACS's relationship with Delta "is now progressing smoothly." Delta officials could not immediately be reached.

In addition to the cash settlement, the document also indicates that Delta and ACS have agreed to scale back their $120 million, seven-year HR outsourcing deal originally signed in February, 2005, prior to Delta's bankruptcy. The deal initially called for ACS to provide the airline with a broad range of HR services, including compensation and benefits administration, relocation services, recruiting, learning, payroll, and employee call center services.

The revised agreement eliminates recruiting, absence plan administration, and employee travel call center support from the deal. The fees paid to ACS "will be concomitantly reduced," according to the document, which does not provide a specific figure. An attached document indicates that the court has approved the amended contract.

Delta's bankruptcy is cutting revenues at a number of IT vendors. In December, SAP agreed to a 27% reduction in software licensing fees charged to the airline. IBM's seven-year infrastructure outsourcing deal with Delta, announced in August, could also be in jeopardy if a proposed merger between Delta and US Airways is consummated.

A US Airways spokesman has said that Delta's IT outsourcing deals are "on a short list" of discussion subjects between US Airways officials and Delta's creditors. US Airways earlier this week upped its offer to buy Delta to $10.3 billion.