As you know, we arrived at the decision to file for bankruptcy aftermonths of discussions with our mainline business partners, potentialinvestors/lenders and organized labor groups, which we had hoped wouldallow us to address our financial and operational challenges and reduceour costs without resorting to a legal process.In the months leading up to our filing, I communicated the challenges wewere facing and the steps we would need to take to resolve them. Iexplained that we were burdened by a number of separate issues that werestacking on top of one another, resulting in a rapidly deterioratingsituation. Those issues fell into two categories; unprofitable partnercontracts and escalating expenses.Unprofitable partner contracts:Ours is a contract business. In simplified terms, we sign contracts withmainline partners to operate flights on their behalf, and those contractsset the fees we receive per flight. Properly negotiated, those fees shouldpay for the cost of operating the flights plus some level of profit.However, for a number of reasons including maintenance costs and pilotproductivity that weren’t correctly factored and (in the case of ourpro-rate contracts) rising fuel costs, our United/Continental Q400 andDelta/9E CRJ-900 contracts signed in 2007 weren’t providing adequate feesto cover our costs.Escalating expenses:At the same time, we were experiencing a substantial rise in expenses.There were a number of drivers that included:· Delays in integrating our three airlines, which ultimately delayed ourability to attain cost synergies· Not right-sizing our management and professional organization quicklyenough· Complications with the implementation of our integrated seniority listthat cost millions of unforeseen dollars in crew productivity and trainingexpenses· A new pilot contract that added millions of payroll dollars to ourday-to-day operating expenses but weren’t scheduled to be reimbursed formore than a year after the new contract went into place· Costs associated with the relocation of our headquartersTaken together, the unprofitable contracts and escalating expenses madeour liquidity situation very tenuous. To solve these problems and reorientPinnacle toward success and profitability, the company sought the mutualcooperation of our organized labor groups and our two primary mainlinepartners (Delta and United) – the “legs” of a three-legged stool thatcould not stand without support from all three.Despite frequent and constructive conversations with our airline partnersand union leadership beginning late last year, the elements of aconsensual restructuring plan did not ultimately fall into place. In earlyJanuary, Delta notified us that they would not participate in ourrestructuring outside of bankruptcy. Even though this was a setback, analternative plan was developed. In order to buy time to implement thisplan, we negotiated interim agreements with EDC and United Airlines toprovide liquidity relief in the deferral of principal and interestpayments on owned aircraft, and increased rates on Q400 and Saab flyingperformed on behalf of United Airlines.The alternative plan also needed permanent wage concessions from all ouremployees, work rule relief from our pilots, renegotiation of the Q400contract with United and agreement on an orderly wind down of our Saabpro-rate flying with United. We also continued discussions with currentlenders and other external parties to raise liquidity to operate ourbusiness during our restructuring phase. In order to reach a long-termfinancially feasible Q400 contract and obtain financial funding, we had tohave permanent pay concessions and work rule relief.The importance of the additional liquidity was to operate our business aswe worked through certain contractual obligations with Delta Air Lines,including the pilot pay and integration reimbursement, agreement on newpilot rates going forward and the non-pilot rate reset on our CRJ-200 andMesaba CRJ-900 contracts in 2013.After numerous discussions with our organized labor groups, it wasdetermined we couldn’t agree on long-term cost-saving measures. This wasthe response even after we walked through the bleak realities of ourbusiness challenges, and explained clearly that the bankruptcyalternative, which we are now living through, would be much more severe.This includes flying reductions, furloughs, benefits and work rule changesand more significant long-term pay concessions.Now that we are in bankruptcy, our next major milestone will be to onceagain engage in negotiations with our organized labor groups to amend ourexisting collective bargaining agreements to create a viable company.While changes to these agreements will inevitably affect the lives of ourdedicated and valued employees, we hope to lessen the impact of thesechanges on our workforce as much as possible, and to reach agreements withour unions that are reasonable and fair under the difficult circumstanceswe are now facing. We also hope to achieve our objectives without theadded expense and distraction of having to ask the court to intervene byrejecting our collective bargaining agreements under Section 1113 of theBankruptcy Code – as virtually all other airlines have done before (and asAmerican Airlines is currently seeking to do).The importance of my letter today is to prepare the organization for thecoming concessions we will be asking of our entire workforce. To reach theobjectives required under our Delta DIP agreement and long-term businessrequirements, we need to achieve significant cost savings. In order toobtain the cost savings required, we have had to look beyond the wages andwork rules we were focused on prior to our bankruptcy filing. Theconcessions that we will be seeking now include wages, work rules, andmodifications to our health and 401(k) plans. For the unionized workforce,we will be meeting with your leadership teams on Tuesday, May 8th todeliver our proposals. And for all employees, we will be communicating therequired concessions in a message on the same day.Despite the challenges we are facing today, we remain dedicated to ourcore mission: to safely, efficiently and economically connect mainlinepassengers between hubs and smaller cities through a well-maintained andprofitable route network. Yes, we ultimately plan to be a smaller andleaner network. However, while minimizing our operational expenses isintegral to achieving these objectives, we recognize the importance ofsafe and skillful execution in all aspects of our business.As we move forward we will keep you informed of important developments asour labor negotiations get underway. In the meantime, we are grateful foryour ongoing dedication, and hope you will continue to bring the samefocus and determination to your work through the duration of this process.All the best,SeanP.S. There’s an article in the New York Times that does a nice jobexplaining the challenges facing the regional airline industry and how wegot to this point. If you’re interested in better understanding thefactors shaping our business and what it’s going to take to successfullyemerge from our reorganization process, I strongly encourage you to readthis.http://www.nytimes.com/2012/05/03/business/regional-airlines-squeezed-by-flight-cutbacks-and-higher-fares.html?_r=2&hp