After a year of arduous labor negotiations, Pinnacle Airlines pilots will start voting Friday on a labor deal that includes 9 percent pay cuts.
Bankrupt Pinnacle operates regional flights for Delta Air Lines out of Minneapolis-St. Paul International Airport and other Delta hubs.
Delta management’s direct involvement in the Pinnacle pilot talks in December led to a three-party deal embraced by Delta and Pinnacle executives and leaders of the Air Line Pilots Association (ALPA).
In documents obtained by MinnPost, the executive council of the Pinnacle pilots union was blunt in its characterization of the deal.
“It reflects that Pinnacle Airlines is a financially insolvent entity in a regional industry that is contracting. These facts left Pinnacle wholly dependent upon Delta Air Lines for survival,” the union leadership said in a message to Pinnacle’s 2,400 pilots.
Pinnacle ALPA’s executive council unanimously endorsed the agreement because it believes it’s the best deal possible.
Tom Wychor, chairman of the Pinnacle pilots union, said that all pilots will take a 9 percent pay cut under the deal. But he said there also are longevity changes in the tentative agreement that will affect pilot pay.
Delta’s fleet decisions had an overwhelming impact on the ultimate Pinnacle labor deal because Delta is Pinnacle’s sole customer. Delta supplies airplanes to Pinnacle and determines how many and which planes Pinnacle will fly.
The majority of planes now flown by Pinnacle pilots are 50-seat Canadair Regional Jets, or CRJ-200s. Delta had 343 50-seaters in its fleet in the middle of 2012 and it wants to dramatically reduce the 50-seaters to125 planes by 2015.
During a mid-December investors meeting in New York, Delta CEO Richard Anderson said “the economics of the 50-seat airplane have deteriorated” at high fuel prices. “Everybody bought those airplanes at $24 a barrel” of oil, Anderson explained. Now, he emphasized, it’s not cost-effective to deploy the 50-seaters on routes to small and medium regional centers.
Delta also wants to rapidly get rid of 50-seaters because many of the planes would soon be coming up for scheduled maintenance work that is expensive. Delta estimated it expects to save more than $400 million over three years by taking 50-seaters out of service and avoiding maintenance costs.
Phasing out 50-seaters
Delta will remove all 140 of Pinnacle’s 50-seaters from Pinnacle’s fleet over the next two to three years, according to Pinnacle.
In a “bridge agreement” that is a companion to the pilots labor deal, Delta stated that it will keep 41 76-seat regional jets in Pinnacle’s fleet and deliver an extra 40 large regional jets to the Memphis-based carrier.
Pinnacle anticipates that it will receive the 40 additional 76-seaters from the fall of 2013 through the end of 2014.
Twin Cities passengers will feel the effects of these Delta fleet changes because some regional destinations will have fewer flights per day as Delta shifts from 50-seaters to 76-seaters.
In early December, Delta placed a firm order with Canada-based Bombardier to acquire 40 new 76-seaters, or CRJ-900s. It was a critical puzzle piece in allowing Delta to reshape its domestic fleet with larger regional jets.
Across its domestic system, Delta also plans to add 88 Boeing 717s, which were previously flown by AirTran Airways. The Boeing 717s and the CRJ-900s both have first-class cabins, which will allow Delta to collect more revenue per passenger than it does on 50-seaters that have coach seats.
Delta customers who have a disdain for small airplanes will no doubt like the fleet shift to larger aircraft.
Hiring path to Delta
However, the sweeping change in Delta’s fleet plans for Pinnacle will have a profound impact on the Pinnacle pilots. So the union and two airlines agreed to contract language to deal with the transition.
When the dust settles in a few years, the bridge agreement specifies that Pinnacle will be left with a minimum of 81 airplanes to fly.
That’s a major downsizing at Pinnacle, so many Pinnacle pilots need to find work elsewhere.
Some of them will land at Delta Air Lines as a result of a “hiring commitment” provision in a deal Delta signed with the pilots union.
“We view this as a significant achievement,” the union’s executive council said in a memo to Pinnacle pilots. In the coming years, retirements at Delta and other big carriers will create many pilot vacancies.
But because the phase-out of the 50-seaters will occur during a concentrated two to three-year period, the Pinnacle labor deal includes furlough benefit packages that include pay, health care and airline travel passes. The union estimates that about 150 Pinnacle pilots will be furloughed during 2013.
Pinnacle pilots, including hundreds based in the Twin Cities, will vote on the labor deal through Jan. 15. It’s a complex agreement that includes cost savings from pay, retirement, work rule and benefit changes. One of the major alterations is reducing captain longevity pay scales from 20 years to 12 years, while the first officer experience scales would drop from eight years in the current contract to four years under the new deal.
Pinnacle filed for bankruptcy on April 1 and ratification of the pilots deal is crucial to a reorganization plan that would allow the regional carrier to exit bankruptcy.
A Chapter 11 filing became necessary after a series of Pinnacle executives stumbled in managing an expansion of the carrier. In court documents, Pinnacle acknowledged that it was caught in money-losing contracts with United Airlines and US Airways.
In a court filing, Pinnacle also said it lost “tens of millions of dollars” because of delayed integration and lost synergies when it attempted to merge the Pinnacle, Mesaba and Colgan businesses.
Pinnacle bought Eagan-based Mesaba for $62 million in 2010.
While he wasn’t at the bargaining table, U.S. Bankruptcy Judge Robert Gerber played a big role in creating the climate for a deal to be reached. In November, Gerber rejected Pinnacle’s motion to impose concessions on its pilots, concluding that Pinnacle had “overreached” in its demands.
Pinnacle ALPA’s executive council wrote that Gerber’s action allowed the union “to negotiate terms that were far more favorable than those that were proposed by the company.”
Regional airlines compete for flying contracts with Delta and other big airlines. Against that competitive backdrop, Wychor said that Pinnacle had “a management team facing self-created liquidity and operational problems.”
Yet after lengthy bargaining, Wychor said, “We were able to secure, at great pilot sacrifice, an agreement that will allow our carrier to survive and our pilots to continue and expand their careers.”
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