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Star Tribune Today NWA

Whyzitsokold

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Feb 21, 2004
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I just read the following article from the Star Tribune online:

The effects of Northwest's bankruptcy continue to be felt by its regional carriers, with Pinnacle Airlines announcing Monday that it will take about 10 percent of its jets out of service effective Oct. 31.

Memphis, Tenn.-based Pinnacle will ground 15 of the 139 jets that it flies for Northwest. Pinnacle, which is making the move at Northwest's request, expects fourth-quarter earnings to be 10 to 15 percent lower than expected as a result of the reduced schedule.

Pinnacle, which operates jets that have 44 or 50 seats, also expects to eliminate an unspecified number of jobs through attrition and voluntary leaves. The carrier may also make involuntary cuts in its workforce of 3,400 employees if necessary.

Northwest controls Pinnacle's schedule, and Northwest spokesman Kurt Ebenhoch said that all opportunities to improve the airline's cost structure are under consideration.

"While the airline does not anticipate any material change to its core hub structure, the airline will be smaller," Ebenhoch said. "With fuel at record-high prices, we need to both adjust our capacity and achieve market costs for any airplane that remains in our fleet."

And Twin Cities-based Mesaba Airlines, which gets almost all of its revenue from Northwest, said Friday that, at Northwest's request, it will park nine of its 98 jets.

Northwest also intends to terminate the leases on all 35 of the 69-seat Avro jets that Mesaba operates for it. A number of sources have said that Northwest is simply seeking more favorable lease terms on the Avros.

Shortly before Northwest filed bankruptcy, it missed a $19 million payment that was due to Mesaba for flight operations. It also skipped a similar $22 million payment to Pinnacle.

Pinnacle said in a Securities and Exchange Commission filing Monday that the impact on its earnings could be more severe than the initial 10 to 15 percent estimate, depending on the outcome of discussions with Northwest about its airline services agreement.

Douglas Abbey, a partner in the Washington, D.C.-based aviation firm the Velocity Group, expects Northwest to use bankruptcy to renegotiate its services with Pinnacle and Mesaba as part of its overall cost-cutting, much as other major bankrupt carriers have done with their regional carriers.

Northwest's agreement with Pinnacle, for instance, calls for it to make payments that provide Pinnacle with a 10 percent operating profit margin on flights by 139 planes. Not only is the revenue picture likely to change with reduced flights, but Abbey said that Northwest could seek a margin as low as 7 percent.

And Northwest has plenty of leverage, Abbey added, including that other carriers -- such as Mesa Airlines, Republic Airways and Air Wisconsin -- may compete for the services now provided by Mesaba and Pinnacle.

As tough as a profit reduction would be, it has to be viewed from the perspective of an industry that has been losing billions each year.

"I think Northwest or United or Delta would be very grateful for a 7 percent operating margin," Abbey said. Separately, Northwest has indicated to the bankruptcy court that it wants to reject a $265,000 annual lease with the Metropolitan Airports Commission for a 34,000-square-foot mail-sorting area attached to the U.S. Postal Service building at Minneapolis-St. Paul International Airport. MAC spokesman Pat Hogan said Northwest has been using the space for storage. It discontinued mail sorting at the site a few years ago after it lost a Postal Service contract. The lease runs through 2026.




Renegotiating the leases is better news that our co website states.
 
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