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VOL. 127 | NO. 39 | Monday, February 27, 2012

Pinnacle CEO: United, ALPA Negotiations Remain

By Bill Dries

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The CEO of Memphis-based Pinnacle Airlines Corp. has told employees that he and the regional air carrier’s leadership have completed their restructuring of the organization.

Sean Menke said in a letter filed with the U.S. Securities and Exchange Commission Friday, Feb. 24, that the company is now focused on renegotiating long-term agreements with United Air Lines Inc. and the Air Line Pilots Association, the labor union representing Pinnacle pilots.

The letter update is the latest in a series Menke has sent employees since he announced in December Pinnacle had hired consultants to help with an overhaul of the company.

Menke said the company’s priority is a new long-term agreement with United. Pinnacle and United reached an interim agreement earlier this year tied to the financing with Export Development Canada for Q400 aircraft. The two interim agreements run through April 2.

Like other regional carriers, Pinnacle has contracts with the global or legacy carrier, among others, that require it to provide connecting flights and services on terms set primarily by the global carrier. Those contracts include setting the times certain aircraft fly, where they fly, what the regional airlines charge, when new aircraft are used and what penalties the regional carriers face if those requirements aren’t met.

The global carriers have cut capacity by phasing out 50-seat aircraft and those with smaller seating capacity.

“Both our Q400 and Saab agreements with United were not performing well financially prior to the interim agreement,” Menke wrote Friday. “If we aren’t able to permanently improve the economics of those contracts, we won’t be able to justify continuing those operations.”

The other priority for Pinnacle is renegotiating contract with labor unions. United Steelworkers union leaders said earlier this year Pinnacle was seeking a five percent cut in wages.

Menke in the letter said Pinnacle is in talks with leaders of the ALPA with no agreement on pay cuts and suggested the issue is whether the cuts would be temporary or permanent.

“For our business plan to work, we need the pay cuts to be permanent,” Menke wrote. “Similar to the United agreement, a temporary reprieve doesn’t fix our long-term financial issues.”

Menke said he couldn’t predict what will happen next. In an earlier letter, Menke specifically said filing for federal bankruptcy reorganization was a possibility. The latest letter also mentions that.

“Any additional organizational restructuring beyond this would be determined by any fleet, network or significant business changes that may come out of the ongoing discussions with our partners,” Menke wrote.

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