VOL. 126 | NO. 240 | Friday, December 09, 2011
Pinnacle Begins Cost, Debt Reduction
By Bill Dries
Memphis-based Pinnacle Airlines Corp. is in overhaul mode. The regional air carrier’s CEO, Sean Menke, announced Thursday, Dec. 8, that the corporation has hired a consultant and attorneys to “commence a comprehensive program to reduce short- and long-term costs and enhance liquidity.”
Menke became CEO in July, replacing Phil Trenary, who resigned.
“Pinnacle Airlines Corp. is facing a convergence of events that, if left unaddressed, will make 2012 an extremely challenging year,” Menke said in a written statement. “We have a great deal of hard work ahead of us, but these efforts are necessary to ensure we can operate as a profitable business for our shareholders, mainline flying partners, employees and other stakeholders.”
Pinnacle has hired Barclays Capital, the consulting division of Seabury Group LLC, and the law firm Davis Polk & Wardwell LLP as it talks with pilots and employees about reducing labor costs.
Menke said the corporation will also seek changes to its agreements with the major air carriers it partners with as well as debt-holders and vendors.
Pinnacle executives had talked in quarterly earnings calls this year of “challenges” it faced in working under changing terms set by the major airlines for which it provides regional service.
Those terms include performance penalties and the cost of training pilots and other personnel as the major airlines brought new aircraft into the Pinnacle fleet on their schedule. They also govern when the regional airlines can raise fares and when and where they can fly.
Those decisions have changed in the last year as the majors have cut or shifted capacity – in the case of Delta Air Lines targeting smaller aircraft used for regional flights for the capacity cuts at Memphis International Airport.
Pinnacle reported a net loss in the third quarter of $3.5 million with special items and one-time expenses. Those include bonuses from recently reached labor agreements as well as changes in the upper ranks as Menke became CEO.
That brought Pinnacle’s losses to $8.8 million for the year through the end of September.
In the November earnings call, Menke said the company was in a “transitional phase.”
“I am the first to admit we have more work to do,” he told analysts as he expressed disappointment. “Any decisions and projects we have embarked on are stacked up on us now.”
Analysts on the call were blunt about what they termed “headwinds” from the agreements between the major airlines and regional carriers, including Pinnacle.
“Will you make money next year?” one analyst asked Menke.
Menke responded by talking generally of “synergies” to come in the second half of 2012.
“For me, there’s a number of things this organization needs to do,” he said then, declining to be more specific. “I’m not there yet.”