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Pinnacle IPO boosts pension funds
Liz Fedor, Star Tribune Staff Writer
Published November 26, 2003 PINN26
Northwest Airlines drew strong protests from unionized workers when it said it wanted to contribute shares of Pinnacle Airlines to three company pension plans instead of cash. When the airline made the stock contributions earlier this year, many employees were skeptical over the stock's estimated value.
Now that Pinnacle shares have been sold in an initial public offering (IPO), Northwest's pension plans will be replenished with $353 million in cash.
The pension plans sold 19.4 million shares of Pinnacle common stock for $14 a share Monday, raising $271.6 million.
"When Northwest pledged Pinnacle stock in lieu of cash, it was our intent to make sure that our employee pension funds eventually received the full proceeds of $353 million," Northwest spokesman Bill Mellon said Tuesday.
"When the proceeds from the Pinnacle IPO are sent to the pension fund, whatever is shy of $353 million, we will write an additional check for that sum," Mellon said.
After underwriting fees, Northwest expects to contribute roughly $85 million to $95 million in cash to the pension funds. The Pinnacle IPO closing is scheduled for Friday.
Originally, underwriters estimated the shares for Pinnacle, a Memphis-based regional carrier, would sell for $15 to $17 per share. Ultimately, the stock was priced at $14 a share late Monday, and the pension funds' shares were sold.
On Tuesday, Pinnacle became a publicly traded stock, opening at $14.01 per share and closing at $13.30. More than 10 million shares changed hands.
As a Northwest Airlink carrier, Pinnacle is guaranteed an operating profit for flying Northwest regional flights from its hubs in Minneapolis-St. Paul, Detroit and Memphis. According to the Pinnacle prospectus, Northwest will guarantee the carrier a minimum operating margin of 9 percent for 2004 and 2005 and 8 percent for 2006 and 2007.
Northwest acquired Pinnacle for about $33 million in 1997. At the time, Pinnacle was exclusively flying turboprop airplanes until Northwest upgraded the fleet with faster and quieter Canadair Regional Jets (CRJs). Pinnacle was flying 70 CRJs at the end of September and Northwest has agreed to expand Pinnacle's CRJ fleet to 129 by the end of 2005.
Pinnacle's operating revenue reached $330 million for the first nine months of this year. The carrier now flies 450 daily departures for Northwest.
After it received an avalanche of letters from concerned Northwest employees, the U.S. Department of Labor held a hearing in May about the Pinnacle stock contribution proposal. Many employees characterized the stock contributions as too risky, and wanted cash put in the plans.
When Northwest President Doug Steenland testified in favor of the deal, Northwest was losing money and feeling the financial sting over lost bookings related to the Iraq war and the outbreak of severe acute respiratory syndrome (SARS), which hurt traffic to the Far East.
The airline was looking for some financial relief and didn't want to use cash reserves to fulfill the entire pension obligation. After it received clearance from the federal government in August, Northwest contributed about three-fourths of its Pinnacle stock to the pension plans.
In a few days, the pension plans will get a cash infusion from the stock sale, plus a Northwest payment. The Pinnacle stock sale did not cover Northwest's entire cash obligation to the pension plans, but it minimized the airline's cash contribution and the stock deal allowed Northwest to defer a cash payment until the airline was on sounder financial footing.
Liz Fedor, Star Tribune Staff Writer
Published November 26, 2003 PINN26
Northwest Airlines drew strong protests from unionized workers when it said it wanted to contribute shares of Pinnacle Airlines to three company pension plans instead of cash. When the airline made the stock contributions earlier this year, many employees were skeptical over the stock's estimated value.
Now that Pinnacle shares have been sold in an initial public offering (IPO), Northwest's pension plans will be replenished with $353 million in cash.
The pension plans sold 19.4 million shares of Pinnacle common stock for $14 a share Monday, raising $271.6 million.
"When Northwest pledged Pinnacle stock in lieu of cash, it was our intent to make sure that our employee pension funds eventually received the full proceeds of $353 million," Northwest spokesman Bill Mellon said Tuesday.
"When the proceeds from the Pinnacle IPO are sent to the pension fund, whatever is shy of $353 million, we will write an additional check for that sum," Mellon said.
After underwriting fees, Northwest expects to contribute roughly $85 million to $95 million in cash to the pension funds. The Pinnacle IPO closing is scheduled for Friday.
Originally, underwriters estimated the shares for Pinnacle, a Memphis-based regional carrier, would sell for $15 to $17 per share. Ultimately, the stock was priced at $14 a share late Monday, and the pension funds' shares were sold.
On Tuesday, Pinnacle became a publicly traded stock, opening at $14.01 per share and closing at $13.30. More than 10 million shares changed hands.
As a Northwest Airlink carrier, Pinnacle is guaranteed an operating profit for flying Northwest regional flights from its hubs in Minneapolis-St. Paul, Detroit and Memphis. According to the Pinnacle prospectus, Northwest will guarantee the carrier a minimum operating margin of 9 percent for 2004 and 2005 and 8 percent for 2006 and 2007.
Northwest acquired Pinnacle for about $33 million in 1997. At the time, Pinnacle was exclusively flying turboprop airplanes until Northwest upgraded the fleet with faster and quieter Canadair Regional Jets (CRJs). Pinnacle was flying 70 CRJs at the end of September and Northwest has agreed to expand Pinnacle's CRJ fleet to 129 by the end of 2005.
Pinnacle's operating revenue reached $330 million for the first nine months of this year. The carrier now flies 450 daily departures for Northwest.
After it received an avalanche of letters from concerned Northwest employees, the U.S. Department of Labor held a hearing in May about the Pinnacle stock contribution proposal. Many employees characterized the stock contributions as too risky, and wanted cash put in the plans.
When Northwest President Doug Steenland testified in favor of the deal, Northwest was losing money and feeling the financial sting over lost bookings related to the Iraq war and the outbreak of severe acute respiratory syndrome (SARS), which hurt traffic to the Far East.
The airline was looking for some financial relief and didn't want to use cash reserves to fulfill the entire pension obligation. After it received clearance from the federal government in August, Northwest contributed about three-fourths of its Pinnacle stock to the pension plans.
In a few days, the pension plans will get a cash infusion from the stock sale, plus a Northwest payment. The Pinnacle stock sale did not cover Northwest's entire cash obligation to the pension plans, but it minimized the airline's cash contribution and the stock deal allowed Northwest to defer a cash payment until the airline was on sounder financial footing.
