Pinnacle Worries About Northwest Contract
Lisa LaMotta,
06.10.08, 6:45 PM ET
Delta Airlines is too busy worrying about fuel woes to play nice.
Delta has been running into a slew of trouble as it tries to consolidate. The legacy carrier has not only been cutting its own capacity, but trying to terminate contracts with its regional carriers; pushing those carriers to the brink of bankruptcy and beyond.
The Atlanta-based airline notified
Pinnacle Airlines (nasdaq:
PNCL -
news -
people ) on Tuesday that it would be terminating its contract as a
Delta Air Lines (nyse:
DAL -
news -
people ) affiliate due to an inability to meet minimum arrival time.
Shares of Pinnacle dropped 25.8%, or $1.54, to $4.44by the close of trading. Meanwhile, Delta was off 2.6%, or 16 cents, to $5.93. Neither Delta nor Pinnacle returned calls for comment.
The smaller carrier countered, saying Delta's termination of the contract is "wrongful" based on the notion that Delta establishes the company's operational scheduling and therefore is partly responsible for the airlines on-time performance.
"We are extremely surprised and disappointed that Delta is attempting to take this drastic and improper action," said
Phil Trenary, Pinnacle's chief executive. "From the very beginning of our Delta Connection operations, we expressed our concern that the flight schedules Delta created were unrealistic. Our position was affirmed when recent schedule changes by Delta allowed immediate improvement in our on-time performance, well above the agreed minimum standard and above most other Delta Connection carriers."
Pinnacle could face the same fate as its regional brethen.
The biggest problem for the smaller carrier may be what this terminated contract will mean for the contract Pinnacle has with its largest customer, Northwest Airlines. Delta is set to merge with Northwest pending regulatory approval and could the merge could bring cloudy skies for Pinnacle.
"At this time, we have no plans to change our relationship with Pinnacle as a Northwest Airlink partner," a Northwest spokeswoman told the Associated Press.
Earlier in the month, a Federal judge blocked the major carrier from ending a contract with
Mesa Air Group (nasdaq:
MESA -
news -
people )'s subsidiary Freedom Airlines. Delta notified Freedom Airlines of the termination of the 50-seat, 34 aircraft Delta Connection operating agreement due to operational performance at the end of March. The company told a Federal judge that it wouldn't be able to pay bondholders and would default on aircraft leases if the contract was canceled. (See: "
Mesa + Delta = Big Mess")
Delta
, which plans to merge with
Northwest Airlines (nyse:
NWA -
news -
people ), said it would cut 2,000 jobs through voluntary retirement and reduce its 2008 domestic capacity by 10% year over year. (See “
Delta, Northwest Fall From The Sky”)
Other regional airlines are having better luck. ExpressJet recently turned down a $3.50 per share offer from SkyWest when it retained a new seven-year agreement to provide regional service for
Continental Airlines, guaranteeing stable income for the small carrier for the foreseeable future. ExpressJet will continue flying 205 jets for Continental. The legacy carrier said their new deal, which will take effect July 1, includes lower rates that are more competitive with other regional carriers.