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Powerful bankruptcy club hangs over Pinnacle Airlines labor talks

Pinnacle has signaled it would ask the bankruptcy judge to throw out the pilots’ contract.

By the end of this week, Pinnacle Airlines will have one customer left in Delta Air Lines.
REUTERS/Jonathan Ernst

Labor Day conjures up images of the struggles, triumphs and contributions of working people, but for Pinnacle Airlines pilots it was a momentary reprieve before jumping back into concessionary negotiations today.

Pinnacle Airlines entered bankruptcy in early April and is seeking $76 million in annual labor cost reductions. The pilots union said the airline is pressing for its pilots to take 7 to 24 percent hourly pay cuts and a host of other concessions. If the pilots and the airline fail to strike a deal by Sept. 13, Pinnacle management has signaled it would ask the bankruptcy judge to throw out the pilots’ contract and allow management to impose work terms.

Tom Wychor, Pinnacle pilots union chairman, said in a MinnPost interview that he’s willing to negotiate a fair contract, but warns that forcing management’s work terms on pilots would have dire consequences. “If they impose, we will liquidate,” Wychor said, explaining that pilots would leave Pinnacle in droves for other airlines or exit the industry and the airline couldn’t survive the upheaval. He emphasized that Pinnacle already has had trouble attracting new pilot hires.

In addition, the carrier has acknowledged that it has struggled to meet its operational goals, and Wychor argued that Pinnacle needs to avoid putting more “stress” on the system that would be caused by high turnover in the pilot and other employee ranks.

Labor savings

The total labor savings that Pinnacle wants from its overall workforce is more than the $62 million that Pinnacle paid in 2010 to buy Eagan-based Mesaba Airlines.

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The Chapter 11 restructuring is playing out in a New York courtroom, but Pinnacle has a big presence in Minnesota. Pinnacle spokesman Joe Williams said that about 1,100 of Pinnacle’s 6,100 employees live in Minnesota.

Many Delta Air Lines customers who fly out of the Minneapolis-St. Paul International Airport to regional destinations are on 50-seat airplanes operated by Pinnacle pilots.

Memphis-based Pinnacle, just like Mesaba, used to have a simple business model that consisted of supplying regional flying for Northwest Airlines. Northwest provided the planes to Pinnacle and Mesaba and Northwest took the risk on fuel prices, which meant the regional carriers needed to focus on providing good operations and living within their revenue from the big airline.

Pinnacle management was itching to expand the company, so it bought Colgan Air, a small turboprop operator in 2007, and Mesaba in 2010.

But Pinnacle’s company growth spurt has been painful. A Colgan Air plane crashed in 2009, killing 50 people in New York state.

There has not been a smooth merger of the Pinnacle, Mesaba and Colgan businesses, and the delayed integration and lost synergies cost the company “tens of millions of dollars,” according to a Pinnacle court filing. Pinnacle also acknowledged that it was losing money on its contracts for supplying regional flights to United Airlines and US Airways. So it’s been phasing out the unprofitable flying during 2012.

By the end of this week, Pinnacle Airlines will have one customer left in Delta Air Lines, which acquired Northwest in 2008.

Revolving door

Pinnacle also has had a revolving door for the airline’s top executive job. In late May 2011, Pinnacle announced that Sean Menke, a former Frontier Airlines CEO, would succeed veteran CEO Phil Trenary, who had spearheaded Pinnacle’s expansion. However, Menke resigned the job after less than a year and passed the CEO baton to John Spanjers, who moved up from Pinnacle’s chief operating officer post.

In some regards, the Pinnacle bankruptcy provides a flashback to the movie “Groundhog Day.” Spanjers is leading a bankrupt airline and seeking major concessions from the pilots and Wychor is pushing for a better deal for his union members. The threat of using the bankruptcy code to abrogate the pilots’ contract hangs over the talks. We saw this movie before when Spanjers and Wychor held the top company and union posts at Mesaba in 2005 and 2006. In that case, the two sides ultimately negotiated a deal that the pilots ratified.

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Mesaba ended up in bankruptcy after Northwest filed for Chapter 11.

In 2012, Pinnacle is attempting to streamline its costs to secure flying of larger regional jets for Delta.

In a mid-August letter to Pinnacle employees, Spanjers wrote: “Delta plans to substantially reduce the number of 50-seat aircraft in its fleet, and increase the number of larger [76-seat] aircraft.” He added that “the bids Delta has received from other regional carriers for 76-seat jet flying were significantly below what they pay for Pinnacle’s [large regional jet] flying.”

This summer, Delta pilots ratified a new labor deal that caps the number of 50-seaters that can be flown for Delta to 125 planes, meaning at least 218 small planes will be eliminated from Delta’s fleet that are now flown by Pinnacle and other regional carriers.

Delta’s new labor agreement prompted Pinnacle management to take a hiatus from its labor talks. In mid-August, Pinnacle increased its annual labor concessions goal from $43 million to $76 million, with the lion’s share of proposed cuts coming from the pilots union at $59.6 million.

“We will aggressively negotiate to achieve an agreement that meets the needs of the carrier,” said Wychor, who leads the Pinnacle branch of the Air Line Pilots Association (ALPA). However, he added, “We will not undercut industry standards in wages, work rules, benefits and [flying] scope.”

Higher hourly pay rates

In pilot contracts, captain hourly pay rates are higher than those paid to first officers, who serve as co-pilots. Pilots also get increases as they move up on experience ladders. Pilots also get pay boosts when they fly larger aircraft.

Wychor said that his members are particularly upset about a company proposal that would require a first officer upgrading to captain to start at first step pay regardless of the pilot’s longevity.

On Thursday, the Pinnacle pilots made a counterproposal that included a captain’s pay freeze for an 18-month period and several productivity enhancements. Pinnacle management has said there are many experienced pilots in the Pinnacle group, which has the effect of pushing up total labor costs. In its counterproposal, the union suggested that Pinnacle management address this “average longevity” issue by working with Delta on “career progression options” so Pinnacle pilots would move to Delta along a career path.

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Wychor said the majority of Pinnacle pilots are making $30,000 to $70,000 a year.

He recently spoke to first officers who’ve been with the airline for five to six years. “They are barely able to meet their college loans and supply their families with housing and food,” he said. “Now they are looking at [potentially] taking massive pay cuts, and seeing increased costs for health care, and only to be rewarded with the loss of longevity when they upgrade to captain.”

Some of the proposals are demoralizing. Wychor added, “Every day I talk to pilots who are looking at leaving the industry.”

In early August, bankrupt American Eagle Airlines reached a tentative agreement with its pilots union, which is also part of ALPA. The union has reported to its members that pay rates won’t be cut and retirement contributions won’t be reduced. That breakthrough offers some optimism that Pinnacle management and the pilots union will be able to negotiate a deal.

To get to that finish line, Spanjers and Wychor, who both live in the Twin Cities area, will need to recall what it took to forge a tentative labor agreement in 2006.

Just as Mesaba employees needed them to lead in 2006, Pinnacle employees are counting on the pair to demonstrate intelligent leadership in 2012.

Fedor can be reached at