Pinnacle Suspends Talks with Unions Following Delta Dialogue

 - August 1, 2012, 12:25 AM
Pinnacle Airlines’ CRJ900s now account for roughly a quarter of its fleet. It needs to add more to compensate for an expected loss of 50-seat CRJ200s.

Bankrupt Pinnacle Airlines suspended negotiations over pay concessions with its unions while it “reformulates” its business plan in an effort to issue a more competitive contract offer to mainline partner Delta Air Lines, according to a June 22 letter sent by CEO John Spanjers to all employees.

Made public in a filing with the Securities and Exchange Commission, the letter said that Delta told Pinnacle management that its competitors had submitted bids for Bombardier CRJ900 flying that undercut Pinnacle’s current rates by a “significant” margin.

“In a nutshell, Delta told us that the bids [it has] received from other regional carriers on two-class flying were significantly below what [it pays] for Pinnacle’s CRJ900 flying,” said Spanjers. “It’s clear that we are competing with carriers that have significant cost and pilot seniority advantages over Pinnacle.”

Spanjers specifically identified St. Louis-based GoJet and Minneapolis-based Compass Airlines–carriers that recently won contracts from Delta to fly 76-seat jets–as companies against which it could not compete for future growth opportunities.

Following its discussions with Delta, Pinnacle apparently also reached the conclusion that its fleet will eventually consist of “far fewer” 50-seat Bombardier CRJ200s. Now flying 140 CRJ200s out of a total fleet of 181 airplanes, Pinnacle hopes to contend for the right to fly at least some of the increased number of 76-seat airplanes a recent tentative agreement reached by Delta and its pilot union would allow in the Delta Connection network.

That tentative contract calls for a scope clause revision that would allow Delta Connection carriers to add seventy 76-seat jets, but also require Delta’s regional partners to remove 218 fifty-seat jets out of a total of 343 now flying in the network.

“These new developments are the reason we are temporarily suspending labor negotiations while we take time to assess the impact of our recent discussions with Delta,” said Spanjers. “Once we reformulate our business plan and identify the level of additional concessions needed to make it work, we’ll communicate those details with all parties and return promptly to discussions with our unions.”

The company announced last December that it had begun what it called a comprehensive program to cut costs and enhance liquidity centering on initiatives to modify its agreements with mainline airline partners, equipment lessors, debt holders, real-estate lessors and vendors. The company also confirmed plans to seek new labor cost concessions from its pilots and other employees, regardless of whether the group in question enjoys union representation. As part of its efforts, the company said it would “examine and further rationalize its business lines, organizational structure and executive and director level functions.”

Then, in its Chapter 11 bankruptcy petition, filed April 1, Pinnacle Airlines summarized the predicament in which it and many regional airlines have found themselves as a result of their mainline partners’ cost-cutting exercises. “The result has been a race to the bottom, as the debtors and other regional airlines have been forced to bid ever-lower rates and accept increasingly unfavorable contract terms to win the business of major carriers,” Pinnacle said.

The Chapter 11 filing marked the start of a process in which Pinnacle began “winding down” all its United Express turboprop flying, including its entire Colgan Air Bombardier Q400 and Saab 340 operations. The bankruptcy plan also called for a restructuring of its regional jet agreement with Delta Air Lines and the release of all its Essential Air Service responsibilities associated with its US Airways and United contracts.

Plans called for the remaining Saab 340 flying Colgan conducts as United Express to end by August 1. The airline plans to end its Q400 operations from Newark and Houston completely by November 30.