Mesaba-Big Sky deal raises red flags at ALPA

 - May 8, 2008, 5:15 AM

Big Sky Airlines will operate as a subsidiary of Mesaba Holdings by year-end if the Billings, Mont.-based Fairchild Metro III operator meets “certain labor conditions” set by its would-be parent company from Minneapolis. The proposed merger would create a new division within Mesaba Holdings, flying under an operating certificate and labor contracts separate from Mesaba Aviation. According to Mesaba, Big Sky would retain Billings as its base of operations and continue to serve its traditional network of Essential Air Service and niche turboprop markets. But as esoteric as Mesaba’s offer to buy the little airline from Billings may seem to the outside observer, the $3.5 million deal has raised emotions ranging from suspicion to outrage from pilots flying for Mesaba Aviation.

“What would Mesaba–a company whose revenues totaled $417 million last year–want with a $25 million-a-year EAS provider at a time most big regionals want to shed their financially and logistically burdensome 19-seat operations?” ask cynics. Mesaba Holdings president and CEO Paul Foley talked in terms of expansion opportunities “within the framework of [Mesaba’s] existing operations.” ALPA, on the other hand, characterized the deal as a classic case of “whipsawing”–introducing a lower-paid employee group into a company to undermine the bargaining position of an incumbent group.

“The company promised this pilot group that Mesaba pilots would be used to expand the airline. Instead, our pilots are being laid off while management uses profits from our pilots’ hard work to purchase a new carrier,” said Capt. Tom Wychor, chairman of Mesaba Airlines’ ALPA unit. “This is clearly designed to hurt our current negotiations and is devastating employee morale.”

In late August Mesaba said it would furlough some 50 of its 950 pilots and close its flight-crew bases in Wausau and Rhinelander, Wis., by the end of the year. The company attributed the decision to a 12-percent decline in traffic over the first seven months of the year. The announcement came as the company prepared to enter federal mediation with its pilot group after 15 months of negotiations yielded little progress toward a settlement.

Mesaba needs to achieve labor peace with its pilot group before Northwest Airlines will consider awarding its Minneapolis-based affiliate any of the 75 Bombardier CRJ440s it ordered last year. To date, Northwest has assigned all its Bombardier regional jets to wholly owned subsidiary Pinnacle Airlines, which during the past year has expanded its presence to new hubs in Detroit and Minneapolis with the new RJs.

“Mesaba’s goal is to expand our business activities profitably both within the framework of our existing operations and in new areas of opportunity,” said Foley. “Big Sky is a good example of the type of opportunity we are seeking. It is an efficiently run company with an excellent safety record and a cost structure that positions it well in the highly competitive regional airline marketplace.”

Foley recently relinquished his title of CEO at Mesaba Holdings’ operating subsidiary, Mesaba Aviation, as part of a wide-ranging corporate restructuring implemented simultaneously with its decision to buy Big Sky. At the same time, Mesaba Holdings’ CFO, Robert Weil, relinquished his title of Aviation’s vice president and CFO. As a result, John Spanjers, Mesaba Aviation’s COO, added the title of president of the operating unit, while the company’s comptroller, Randy Stroebel, assumed the title of v-p of finance.

Big Sky, a Montana stalwart since it opened for business in 1978, now flies a fleet of 15 Fairchild Metro IIIs to 20 communities in Montana, North Dakota, Washington, Colorado and Idaho. In November 1998 it opened a new base at Dallas/Fort Worth International Airport to serve seven EAS-subsidized markets formerly served by bankrupt Aspen Mountain Air, followed by a foray into Denver in 2000 that had grown to include direct flights to Billings, Idaho Falls and Enid, Okla., under a code share with America West Airlines. However, it had to close its base in Dallas and pull its service from Enid on September 30 after Phoenix-based Mesa Air Group won a two-year contract for all seven of Big Sky’s southern EAS markets. As a result, Big Sky lost $13.4 million worth of DOT subsidies over the two-year contract period, and a total of some $21 million in revenues.

Mesaba, meanwhile, continues what Foley described as a “tediously slow and painful” process of negotiations with ALPA, made more so by the pilots’ desire to win back concessions they yielded during their last contract talks in 1996. Six years later the company finds itself in the midst of an industrywide downturn, just as its primary code-share partner, Northwest Airlines, prepares to allocate another batch of regional jets–but only to an affiliate that can demonstrate both labor peace and cost containment.

In the absence of a deal with the Mesaba pilots, management has decided to take an avenue similar to that used by Mesa Air Group when it established a new non-union division to gain leverage over its ALPA-represented pilot group, according to the union. “This is a very dangerous trend in our industry,” said ALPA president Duane Woerth. “ALPA will use all appropriate means, including financial, legal, communications and other resources, to end this whipsawing tactic.”