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Memphis Commercial Appeal
Pinnacle, NWA deal extended to 2017
© Copyright 2006 Morningstar, Inc.
By Jane Roberts
December 22, 2006
In an agreement reached late Thursday, Northwest Airlines and Pinnacle will be partners through 2017, with Pinnacle taking a cut in pay but gaining the right to fly for other carriers.
The result, analysts say, is that Memphis-based Pinnacle now has a chance to grow on its own merits.
"This ensures the 1,000 Pinnacle employees in Memphis have secure jobs," said president and chief executive Phil Trenary. "And it allows us to stay in Memphis, our home and the place we love."
Under the agreement, Pinnacle will continue to fly the 124-plane fleet of 50-seat regional jets on loan from Northwest, but for about half the pay under its former deal with Northwest.
To sweeten the deal, Northwest will give Pinnacle 17 76-seat Bombardier regional jets in 2007, provided Pinnacle has a labor agreement with its pilots by March 31.
"The Pinnacle pilots are pleased and gratified," said Wakefield Gordon, head of the local Air Line Pilots Association at Pinnacle.
He says the deal "sets the stage for the pilots and management to come together without a cloud hanging over our heads and work out a fair and equitable contract."
If Pinnacle does not have an agreement by then, Northwest may remove the 76-seat planes at a rate of three a month.
As part of the deal, Pinnacle also will receive a $377.5 million unsecured claim against Northwest in bankruptcy.
"The 76-seat planes are much more attractive than the 50-seaters," said industry analyst Darryl Jenkins.
"The challenge for regional airlines is that if the network carriers consolidate, they will be shutting down some hubs, which will be a big loss for the commuters.
"Pinnacle is going to have to watch every dime, and they are going to have to get work from other carriers to survive."
Many in the industry expected Pinnacle would evaporate when Northwest filed for bankruptcy.
"Being a regional carrier with a main partner in bankruptcy is a pretty harsh life," Jenkins said.
"A lot of us thought Pinnacle was just going to go away."
While the challenges are great, the opportunity to seek other customers allows Pinnacle "to spread its wings," said George Hamlin, adviser with Morten Beyer & Agnew in Arlington, Va.
"They have a good management team. Now, we'll see how they can do now that they are less limited."
Under the old agreement, Pinnacle flew only for Northwest, also its majority shareholder. Under the new terms, it will be allowed to charge Northwest market rates for services.
Northwest, in turn, will provide jet fuel and reduce lease rates Pinnacle pays on planes.
Assuming it can reach an agreement with its pilots in the first quarter of 2007, Pinnacle expects the deal will provide $50 million in operating income in the first year, excluding earnings from other carriers or earnings it might receive from the sale of its unsecured claim against Northwest.
"I think the pilots will come to the table," Trenary said. "They have played a huge role in this company. I know they will be happy to see this deal."
Bankrupt Mesaba Airlines, Northwest's other regional partner, is in merger talks with Northwest now.
Trenary prefers his airline's position to Mesaba's, saying he would "never want to be in a position to come out of bankruptcy with Northwest paying the costs.
Pinnacle, NWA deal extended to 2017
© Copyright 2006 Morningstar, Inc.
By Jane Roberts
December 22, 2006
In an agreement reached late Thursday, Northwest Airlines and Pinnacle will be partners through 2017, with Pinnacle taking a cut in pay but gaining the right to fly for other carriers.
The result, analysts say, is that Memphis-based Pinnacle now has a chance to grow on its own merits.
"This ensures the 1,000 Pinnacle employees in Memphis have secure jobs," said president and chief executive Phil Trenary. "And it allows us to stay in Memphis, our home and the place we love."
Under the agreement, Pinnacle will continue to fly the 124-plane fleet of 50-seat regional jets on loan from Northwest, but for about half the pay under its former deal with Northwest.
To sweeten the deal, Northwest will give Pinnacle 17 76-seat Bombardier regional jets in 2007, provided Pinnacle has a labor agreement with its pilots by March 31.
"The Pinnacle pilots are pleased and gratified," said Wakefield Gordon, head of the local Air Line Pilots Association at Pinnacle.
He says the deal "sets the stage for the pilots and management to come together without a cloud hanging over our heads and work out a fair and equitable contract."
If Pinnacle does not have an agreement by then, Northwest may remove the 76-seat planes at a rate of three a month.
As part of the deal, Pinnacle also will receive a $377.5 million unsecured claim against Northwest in bankruptcy.
"The 76-seat planes are much more attractive than the 50-seaters," said industry analyst Darryl Jenkins.
"The challenge for regional airlines is that if the network carriers consolidate, they will be shutting down some hubs, which will be a big loss for the commuters.
"Pinnacle is going to have to watch every dime, and they are going to have to get work from other carriers to survive."
Many in the industry expected Pinnacle would evaporate when Northwest filed for bankruptcy.
"Being a regional carrier with a main partner in bankruptcy is a pretty harsh life," Jenkins said.
"A lot of us thought Pinnacle was just going to go away."
While the challenges are great, the opportunity to seek other customers allows Pinnacle "to spread its wings," said George Hamlin, adviser with Morten Beyer & Agnew in Arlington, Va.
"They have a good management team. Now, we'll see how they can do now that they are less limited."
Under the old agreement, Pinnacle flew only for Northwest, also its majority shareholder. Under the new terms, it will be allowed to charge Northwest market rates for services.
Northwest, in turn, will provide jet fuel and reduce lease rates Pinnacle pays on planes.
Assuming it can reach an agreement with its pilots in the first quarter of 2007, Pinnacle expects the deal will provide $50 million in operating income in the first year, excluding earnings from other carriers or earnings it might receive from the sale of its unsecured claim against Northwest.
"I think the pilots will come to the table," Trenary said. "They have played a huge role in this company. I know they will be happy to see this deal."
Bankrupt Mesaba Airlines, Northwest's other regional partner, is in merger talks with Northwest now.
Trenary prefers his airline's position to Mesaba's, saying he would "never want to be in a position to come out of bankruptcy with Northwest paying the costs.
