Pinnacle Air Reorganised

There have been so many airline bankruptcies this year that I am struggling to keep up!

These bankruptcies mean a lot of disruption, a lot of passenger inconvenience and many staff job losses. It is concerning that so many have gone this year, already. Of course, India’s Kingfisher is teetering and may not last much longer. The poor economy and rising oil prices are squeezing airlines further. Some collapses also reflect poor managerial decisions.

Now to April. On the 2nd, Pinnacle airlines filed for Chapter 11 Bankruptcy protection. In Chapter 11, the debtor remains in control of its business operations and while, subject to the oversight and jurisdiction of the court can use the situation to streamline and re organise their company. Most passengers won’t notice any changes as Pinnacle does not operate any of its own services. Instead, they provide regional services for United, US airways and Delta. While passengers may not notice much, a lot will occur “behind the scenes”. Pinnacle own Colgan air and Mesaba airways.

In arguing for chapter 11, John Spanjers, Pinnacle chief operating officer, said: “Regional airlines have been forced to bid ever-lower rates and accept increasingly unfavorable contract terms to win the business of major carriers. These sacrifices have drained regional carriers and continue to do so, with frequently unsustainable consequences.”  Chapter 11 means that Pinnacle need to reduce their costs- fast and re negotiate revenues. These comments appear to apply to aviation overall. How many airlines operate on the edge of unsustainability all the time?

What the company intends to do:

  • use a new management team to re arrange things. Sean Menke, CEO came from Frontier
  • stop flying for anyone but Delta, who represent 80 per cent of their business
  • Borrow money from Delta ($74.3 million). Some of this money is intended to fund the re-org and some of it is actually being used to pay back an existing loan Delta gave the carrier
  • Cancel, renegotiate and change contracts
  • Reduce the number of planes they own
  • Cut pilot numbers by 800
One very telling thing for me. On February 24, 2012, Pinnacle invoked a 5% pay cut for all pilots. CEO Menke insisted the cut was necessary to prevent bankruptcy protection.  About a month later and two weeks before filing for Chapter 11, Menke got a 60 per cent pay rise from $425,000 to $675,000.  COO Spanjers received a 45% raise from $275,000 to $400,000. The pilots union claim the majority of Pinnacle pilots are earning annual pay in the $30,000 to $70,000 range. Expect some hard bargaining from the unions in this.

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  1. […] Friday has become my day to blog about major changes to airlines. So far, this year, there has been a lot to write about vis a vis airline bankruptcies (Cirrus, Spanair, US3000,  Air Australia, Malev, Air Zimbabwe, Direct Air, Red Jet, GMG) or near bankruptcies ( Kingfisher,  Pinnacle). […]

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