The survival of bankrupt Pinnacle Airlines hinges on developing a sound business plan that includes a market-rate labor contract for pilots, according to the Pinnacle pilots union chairman.
To be successful in the long-term, Pinnacle “will certainly need a pilot contract capable of attracting and retaining qualified pilots,” Tom Wychor, pilots union chairman, said in a Saturday interview with MinnPost.
Before the regional carrier filed for Chapter 11 last week, Wychor said, his union engaged in three rounds of concessionary bargaining. “We understood that there was a liquidity issue and we needed to make a near-term investment,” he said.
The union offered a short-term 5 percent pay cut, and also included a provision to later recapture higher pay rates. When a bankruptcy filing appeared more imminent, he said, a temporary 7 percent wage cut was discussed.
“Shortly after that, the company stated they needed a permanent 5 percent concession,” Wychor said, adding that management lost interest in other ideas the union had about achieving cost savings.
Now the pilots, represented by the Air Line Pilots Association (ALPA), and Memphis-based Pinnacle are both locked in a bankruptcy case that will play out in a New York City courtroom.
The futures of Pinnacle management and its pilots are linked, but both sides also will need to develop solutions that make sense to Delta Air Lines. The major airline contracts with Pinnacle to operate regional flights under the Delta Connection name.
Delta has been emphasizing the importance of delivering a consistent level of service across its brand, regardless of whether a passenger is flying to Fargo, New York or London. So Delta management wants a reliable, on-time regional carrier that provides good customer service.
By the end of Pinnacle’s bankruptcy, Delta is expected to be the lone customer of the regional carrier.
There are almost 2,860 pilots employed by Pinnacle, including 658 pilots based out of Minneapolis-St. Paul.
800 jobs cut
Wychor projected that about 800 pilot jobs will be cut over the next
12 months. Waves of furloughs are anticipated because Pinnacle will end its flying contracts with United Airlines and US Airways and remove 16 jets that are being used on Delta routes.
A new management team at Pinnacle is focused on phasing out the service contracts with United and US Airways, and the bankruptcy process will help executives financially restructure other contracts and leases.
“Regional airlines have been forced to bid ever-lower rates and accept increasingly unfavorable contract terms to win the business of major carriers,” John Spanjers, Pinnacle chief operating officer, wrote in a filing with the court. “These sacrifices have drained regional carriers and continue to do so, with frequently unsustainable consequences.”
Spanjers and Pinnacle CEO Sean Menke will use Chapter 11 to overhaul a business model that was constructed by longtime CEO Phil Trenary.
Spanjers was the top executive at Mesaba Airlines when the Eagan-based carrier went through bankruptcy in Minneapolis. Mesaba was purchased by Pinnacle in 2010. Menke joined Pinnacle last summer and he previously was CEO of Frontier Airlines when it was restructured. Trenary, who was awarded a $1.7 million consulting contract upon his departure, is listed as the 24th largest creditor in the Pinnacle bankruptcy case.
Pinnacle Airlines is using the same law firm that Delta used in its bankruptcy, and the pilots union has hired the same firm that represented Delta pilots in Chapter 11. Wychor said that ALPA International just awarded the Pinnacle pilots union a $2.5 million grant from its “war chest” to use in its bankruptcy fight for a fair contract.
Wychor said the pilots union is prepared to be part of the airline’s financial solution, but the ALPA money will be used for strong legal counsel and other resources to ensure that the pilots emerge with a good labor deal.
Even before Pinnacle’s financial woes became public, Wychor said it was becoming more difficult to recruit the pilots that Pinnacle needed for its training classes. “There are very few pilots coming into the front end of the pipeline,” he said, because pilots can spend $80,000 to $150,000 on a college degree and flight training before getting hired by a regional carrier.
“If you’re lucky, you make $25,000 to $30,000 your first year” in the industry, he said. At Pinnacle, he said a majority of pilots are earning annual pay in the $30,000 to $70,000 range.
Pinnacle Airlines Corp. has been spending a lot of money on pilot-training costs as pilots from its Pinnacle, Mesaba and Colgan operating units came under one pilot seniority list. Citing the success of the Delta and Northwest Airlines merger, Wychor said there were steps that Pinnacle management could have taken to reduce pilot-training costs.
Too many executives
After Menke came on board, he said that the CEO recognized that the carrier had a surplus of executives from the three carriers.
In his declaration to the court, Spanjers indicated that the officer team was reduced from 29 to 18. In addition, he said that 26 director-level positions were eliminated. Wychor said that Pinnacle had been “paying for three management teams, each tripping over each other, trying to do a single management team’s job. It was less efficient and certainly more expensive.”
He also said that Pinnacle couldn’t right itself because some flying contracts it had with major carriers didn’t generate enough revenue to simply cover expenses.
The Pinnacle bankruptcy case is a priority of ALPA International, and its president, Lee Moak, is particularly attuned to Pinnacle’s labor challenges because he previously headed the Delta pilots union. In an April column on pilot negotiations, Moak wrote: “We must set aggressive but realistic goals.”
That appears to be precisely the posture that Pinnacle pilot leaders are taking to protect their bargaining unit and other ALPA unions across the industry.
But before the Pinnacle pilots get back to tough labor negotiations, Wychor said, they want to get paid correctly for the work they do under the current contract.
For months, Pinnacle has had problems in its payroll system that result in some pilots missing their base pay, or per diem or overtime.
“Some of our crew members are short thousands of dollars. They can’t pay their mortgages because they don’t have the money in their pay checks,” Wychor said.
Fixing the payroll problem immediately would be a surefire way for management to show it’s serious about becoming partners with the pilots.
Fedor can be reached at email@example.com.