Pinnacle Digs Deeper for Labor Concessions

 - October 1, 2012, 1:55 AM
Pinnacle now flies 41 Bombardier CRJ900s as Delta Connection, but wants to compete for a contract to fly as many as 54 more under the same banner.

Pinnacle Airlines has resumed talks with its employee groups over contract concessions, following a recalculation of the cost savings it says it needs to emerge from Chapter 11 bankruptcy protection. According to Pinnacle, it now needs to shed $76 million to return to viability due in large part to Delta Air Lines’ plans to shed more than 200 fifty-seat regional jets from the Delta Connection system. It originally asked for $43 million in concessions.

Pinnacle has already said it will impose a 6-percent pay cut for all non-union employees, reduction in vacation time, cuts in the company match to 401(k) retirement plans and switch from a traditional PPO health-care benefit to a “consumer-driven health reimbursement plan.”

In June the company suspended talks with its employee groups to allow it to “reformulate” a plan to compete more effectively with other regional airlines for the right to fly some of the additional 76-seat airplanes expected to enter the Delta Connection network. A new contract reached between Delta and its pilots includes a scope clause revision that will 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.

So far Delta has awarded 29 of the seventy 76-seaters to St. George, Utah-based SkyWest. However, the closure of Cincinnati-based Comair at the end of last month grounded 13 thirteen dual-class Bombardier CRJ900s, leaving available slots for another 54 seventy-six seaters in the Delta Connection network.

Of course, Pinnacle would like to win the right to fly all or some of those airplanes to help compensate for the reduction in 50-seat jet capacity it expects Delta to impose. However, in an August 16 letter to all employees, Pinnacle CEO John Spanjers explained that bids by competing regional airlines for 76-seat jet flying proved “significantly” lower than the amount Pinnacle now charges for the service it delivers with its CRJ900s.

The reason Pinnacle must charge more, he suggested, lies largely with the seniority benefits its employees enjoy. “As an older, legacy competitor, Pinnacle is particularly vulnerable to the difficulties plaguing our industry,” wrote Spanjers. “Because costs tend to grow over time, the fact that our airline has been around longer means we have higher costs in areas like pay rates (driven by seniority), health plans and retirement plan contributions. Those higher costs are compounded at Pinnacle by inefficient work rules and a workforce with even higher seniority due to our shrinking fleet.”

Pinnacle’s operational fleet now numbers 41 seventy-six-seat CRJ900s and 140 fifty-seat CRJ200s following the September 5 conclusion of Bombardier Q400 flying by subsidiary Colgan Air. At one time flying 32 Q400s under the Colgan certificate out of Newark, Washington Dulles and Dallas-Fort Worth, Pinnacle began “winding down” that operation–along with its now defunct United Express Saab 340 business–soon after it filed for bankruptcy on April 1.