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VOL. 126 | NO. 39 | Friday, February 25, 2011

Pinnacle Airlines Readies for More Changes

By Bill Dries

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2011 will be a year of more transition for Memphis-based Pinnacle Airlines Corp.

Not only will Pinnacle consolidate its headquarters at One Commerce Square in Downtown Memphis, but it will transition to a holding company for two regional air carriers instead of three.

That’s what Pinnacle president and CEO Phil Trenary told investors and analysts this month as the company reported fourth quarter 2010 and year-end results.

The company reached $1 billion in operating revenues. But the year-end earnings were short of analysts’ estimates. Pinnacle remained in transition from its acquisition of two regional carriers in less than four years and big changes with the carriers it provides connecting service for.

Then there was the weather.

Pinnacle Airlines Corp. President and CEO Phil Trenary – who also spoke Thursday morning at the Greater Memphis Chamber’s breakfast – said he’s never seen the kind of weather problems the airline had in the last three months of 2010.

“It was by far the most difficult three-month stretch we’ve had,” Trenary said this month as he reviewed the fourth quarter.

“Pinnacle has a very complex network – by far the most complex of all the Delta connection carriers,” he explained. “We have a network that can be severely impacted when you have an usual weather pattern like we had.”

For much of the year ahead, Pinnacle’s coalition of three connecting airlines will make adjustments that have nothing to do with the weather.

Pinnacle the holding company became parent company of Pinnacle Airlines Inc. in January 2003 in a share exchange with NWA Inc. It bought Colgan Air Inc. in January 2007 and Mesaba Aviation Inc. from Delta Air Lines in July.

The Mesaba acquisition came after Delta merged with Northwest Airlines Inc. and Memphis International became a Delta hub as it had been for Northwest.

The three Pinnacle subsidiaries operate as separate business units.

Pinnacle, like Mesaba, operates under Delta brands while Colgan Air operates as Continental Connection, United Express and U.S. Airways Express.

At the end of 2010, Trenary felt the company had laid the foundation for a path to two carriers instead of the current three.

The plan is for Pinnacle to be the brand for all of the jet aircraft and Mesaba to be the brand for the turbo props.

“Anytime you have an integration like this … it’s very important to get it right both from an operations standpoint and from a cultural standpoint,” he said.

“The two remaining carriers will be more profitable than the three independent carriers today.”

Mesaba accounted for $70 million of the $82 million increase in operating revenue Pinnacle saw year over year.

Meanwhile, the Colgan Air division of Pinnacle took early delivery of several Q400s in an agreement with United Air Lines to operate them. The early delivery cost Pinnacle money in training and operation, an estimated $1.4 million, which was more than Pinnacle anticipated.

The Saab 340s flown by Colgan also had some maintenance problems as the company worked through the last year of a maintenance contract with an outside vendor. By bringing maintenance in house, Pinnacle anticipates annual savings of $3 million to $4 million.

Pinnacle also secured a five-year contract agreement with union pilots at all three of its subsidiaries. The tentative agreement was ratified on the day Pinnacle announced its fourth quarter earnings.

The pilots at all three had just opted for union representation by the Air Line Pilots Association under a single collective bargaining agreement in January.

The agreement calls for a one-time bonus. And it will be followed by a rate increase Pinnacle has been barred from taking until now under its agreements, first with Northwest Airlines and then Delta.

The agreement with Northwest permitted rate increases every five years, but the first five years passed without one as Northwest was in bankruptcy reorganization.

Meanwhile, Delta closed the books on 2010 with a $313 million profit sharing pay out, the largest such pay out in the company’s history.

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