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Powerful bankruptcy club hangs over Pinnacle Airlines labor talks
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By Liz Fedor | 09/04/12

REUTERS/Jonathan Ernst
By the end of this week, Pinnacle Airlines will have one customer left in Delta Air Lines.
Labor Day conjures up images of the struggles, triumphs and contributions of working people, but for Pinnacle Airlines pilots it was a momentary reprieve before jumping back into concessionary negotiations today.

Pinnacle Airlines entered bankruptcy in early April and is seeking $76 million in annual labor cost reductions. The pilots union said the airline is pressing for its pilots to take 7 to 24 percent hourly pay cuts and a host of other concessions. If the pilots and the airline fail to strike a deal by Sept. 13, Pinnacle management has signaled it would ask the bankruptcy judge to throw out the pilots’ contract and allow management to impose work terms.

Tom Wychor, Pinnacle pilots union chairman, said in a MinnPost interview that he's willing to negotiate a fair contract, but warns that forcing management's work terms on pilots would have dire consequences. "If they impose, we will liquidate," Wychor said, explaining that pilots would leave Pinnacle in droves for other airlines or exit the industry and the airline couldn't survive the upheaval. He emphasized that Pinnacle already has had trouble attracting new pilot hires.


In addition, the carrier has acknowledged that it has struggled to meet its operational goals, and Wychor argued that Pinnacle needs to avoid putting more "stress" on the system that would be caused by high turnover in the pilot and other employee ranks.

Labor savings
The total labor savings that Pinnacle wants from its overall workforce is more than the $62 million that Pinnacle paid in 2010 to buy Eagan-based Mesaba Airlines.

The Chapter 11 restructuring is playing out in a New York courtroom, but Pinnacle has a big presence in Minnesota. Pinnacle spokesman Joe Williams said that about 1,100 of Pinnacle's 6,100 employees live in Minnesota.

Many Delta Air Lines customers who fly out of the Minneapolis-St. Paul International Airport to regional destinations are on 50-seat airplanes operated by Pinnacle pilots.

Memphis-based Pinnacle, just like Mesaba, used to have a simple business model that consisted of supplying regional flying for Northwest Airlines. Northwest provided the planes to Pinnacle and Mesaba and Northwest took the risk on fuel prices, which meant the regional carriers needed to focus on providing good operations and living within their revenue from the big airline.

Pinnacle management was itching to expand the company, so it bought Colgan Air, a small turboprop operator in 2007, and Mesaba in 2010.

But Pinnacle's company growth spurt has been painful. A Colgan Air plane crashed in 2009, killing 50 people in New York state.

There has not been a smooth merger of the Pinnacle, Mesaba and Colgan businesses, and the delayed integration and lost synergies cost the company "tens of millions of dollars," according to a Pinnacle court filing. Pinnacle also acknowledged that it was losing money on its contracts for supplying regional flights to United Airlines and US Airways. So it's been phasing out the unprofitable flying during 2012.

By the end of this week, Pinnacle Airlines will have one customer left in Delta Air Lines, which acquired Northwest in 2008.

Revolving door
Pinnacle also has had a revolving door for the airline's top executive job. In late May 2011, Pinnacle announced that Sean Menke, a former Frontier Airlines CEO, would succeed veteran CEO Phil Trenary, who had spearheaded Pinnacle's expansion. However, Menke resigned the job after less than a year and passed the CEO baton to John Spanjers, who moved up from Pinnacle's chief operating officer post.

In some regards, the Pinnacle bankruptcy provides a flashback to the movie "Groundhog Day." Spanjers is leading a bankrupt airline and seeking major concessions from the pilots and Wychor is pushing for a better deal for his union members. The threat of using the bankruptcy code to abrogate the pilots' contract hangs over the talks. We saw this movie before when Spanjers and Wychor held the top company and union posts at Mesaba in 2005 and 2006. In that case, the two sides ultimately negotiated a deal that the pilots ratified.

Mesaba ended up in bankruptcy after Northwest filed for Chapter 11.

In 2012, Pinnacle is attempting to streamline its costs to secure flying of larger regional jets for Delta.

In a mid-August letter to Pinnacle employees, Spanjers wrote: "Delta plans to substantially reduce the number of 50-seat aircraft in its fleet, and increase the number of larger [76-seat] aircraft." He added that "the bids Delta has received from other regional carriers for 76-seat jet flying were significantly below what they pay for Pinnacle's [large regional jet] flying."

This summer, Delta pilots ratified a new labor deal that caps the number of 50-seaters that can be flown for Delta to 125 planes, meaning at least 218 small planes will be eliminated from Delta's fleet that are now flown by Pinnacle and other regional carriers.

Delta's new labor agreement prompted Pinnacle management to take a hiatus from its labor talks. In mid-August, Pinnacle increased its annual labor concessions goal from $43 million to $76 million, with the lion's share of proposed cuts coming from the pilots union at $59.6 million.

"We will aggressively negotiate to achieve an agreement that meets the needs of the carrier," said Wychor, who leads the Pinnacle branch of the Air Line Pilots Association (ALPA). However, he added, "We will not undercut industry standards in wages, work rules, benefits and [flying] scope."

Higher hourly pay rates
In pilot contracts, captain hourly pay rates are higher than those paid to first officers, who serve as co-pilots. Pilots also get increases as they move up on experience ladders. Pilots also get pay boosts when they fly larger aircraft.

Wychor said that his members are particularly upset about a company proposal that would require a first officer upgrading to captain to start at first step pay regardless of the pilot's longevity.

On Thursday, the Pinnacle pilots made a counterproposal that included a captain's pay freeze for an 18-month period and several productivity enhancements. Pinnacle management has said there are many experienced pilots in the Pinnacle group, which has the effect of pushing up total labor costs. In its counterproposal, the union suggested that Pinnacle management address this "average longevity" issue by working with Delta on "career progression options" so Pinnacle pilots would move to Delta along a career path.

Wychor said the majority of Pinnacle pilots are making $30,000 to $70,000 a year.

He recently spoke to first officers who've been with the airline for five to six years. "They are barely able to meet their college loans and supply their families with housing and food," he said. "Now they are looking at [potentially] taking massive pay cuts, and seeing increased costs for health care, and only to be rewarded with the loss of longevity when they upgrade to captain."

Some of the proposals are demoralizing. Wychor added, "Every day I talk to pilots who are looking at leaving the industry."

In early August, bankrupt American Eagle Airlines reached a tentative agreement with its pilots union, which is also part of ALPA. The union has reported to its members that pay rates won't be cut and retirement contributions won't be reduced. That breakthrough offers some optimism that Pinnacle management and the pilots union will be able to negotiate a deal.

To get to that finish line, Spanjers and Wychor, who both live in the Twin Cities area, will need to recall what it took to forge a tentative labor agreement in 2006.

Just as Mesaba employees needed them to lead in 2006, Pinnacle employees are counting on the pair to demonstrate intelligent leadership in 2012.

Fedor can be reached at [email protected].
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Related Tags:
Economy Greater Minnesota Metro Area Minneapolis Nation St. Paul Business Twin Cities Washington Bureau INN Delta Air Lines John Spanjers Mesaba Airlines Northwest Airlines Pinnacle Airlines Tom Wychor
ABOUT THE AUTHOR:

Liz Fedor
Liz Fedor writes about the intersection between business and government. She reported on the airline industry and manufacturing sector for the Star Tribune.
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COMMENTS (1)

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SUBMITTED BY LOGAN FOREMAN ON SEPTEMBER 4, 2012 - 9:09AM.
Bankruptcy more than the airline industry, especially the corporate officers. Meanwhile the passengers receive more fees and infinitely less service every day. The new American way
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Stay strong guys ... Don't let corporate intimidate you and dictate your lifes... Best of luck for a fair contract every one deserves it

Reference to a wildcat? NYC bus drivers part 2? Spanjers should hope the court doesn't give him what he wants as it would probably be the death knell

Burn it down

In summary:

Pinnacle sucks. The job sucks. The pilots hate it. The union is making empty threats. The union won't actually let the contract get tossed. Everyone will still show up to work after a new contract is voted in or even after the contract gets tossed. Business will continue as usual as it has for years and years. Butthurt will be significant on this message board.

He's pretty good at being a whipping boy. He takes orders really well, and probably has little care to whether the airline survives or not. He's not creating these proposals, he's just delivering them from someone at DAL.

I really don't think you know what you're talking about. Plenty of people would leave within a couple of weeks if the company were to get their asks.

Weeks? There would be a line at the CP's office out into the terminal within a couple hours to hand in resignations and manuals. People are quitting faster than they can handle as it is now.

I hope you are right. It's tough to take one for the team but I'd be right there with you guys. I really mean that too. I have secured myself financially in other ways. I don't need the job. I'm just doing it for the health benefits etc. and have no problem screwing the corporations if I could.

For years and years, companies have pointed their fingers at the hard working contractual employees when they (management) fail to properly run their company. They have been whittling away at the benefits of that technique in emerging from BK each and every time. How far can they go? How many times can they pull that trigger? I think they have finally exhausted that option of people giving back their hard earned wages to only see the company fail completely in the end.

Keep what is yours. In the end there will be better opportunities. Just be patient.

First - there's not a chance in hell that the company is going to get what they asked for in their latest 1113 proposal. They know it, and we know it.

Second - I'll be shocked if we are able to reach an agreement by the 13th considering it's less than a week away and management canceled the meeting on Friday (according to the latest fastread).

Third - After what just happened with AA it wouldn't surprise me if the company wins in court when we go. If/when that happens there will be pilots lining up to hand in their badges.

I'm just hoping to hold on long enough for the hiring to start at the majors...

Good luck to all of us!

Part of me thinks that people leaving in droves is what DAL wants to happen anyway. Maybe not at the rate that will ensue if things get really sour. If those were the terms in the first place, I would've never worked here. And I would simply refuse to work here if those terms were granted to them after my being hired.

I agree. There is no winning this situation for management. If they throw out the contract, they lose tons of pilots. If they get the union to agree to concessions, pilots will leave. If they keep the contract at current status, pilots will stick around just long enough to jump to a major. They really should just liquidate now.

Isn't it their goal to lose pilots though? Cheaper than furloughing off the bottom.

Sounds like its a win-win for management. Thin the ranks and the ones that stay are a lot cheaper.

I could see 150 pilots leaving a month if things get too ugly however are those the pilots that the company wants to push out? Highly unlikely, the top 400 - 600 are not going to exit at the same rate as the bottom 1500. So they replace someone making 30K with someone making 24K but the training costs another 25K, in the end the company loses money on the deal. It is too bad Delta rode in with the cash at the last minute and didn't let the place go down.

I somewhat agree. With this place becoming a total 900 operator, you will have some middle seniority CA's who enjoy 90K+ a year going back to FO making 35K a year and sitting reserve. Not sure how they would justify sticking around. Then again, that is their financial situation and happens to be none of my business.

Until a pilot group as a whole, or at least majority, stands together and lines up 500 long to resign on the same day, we will continue to see this abuse in the industry. That tactic is the only one left that hasn't been written as illegal.

I think some of you are overestimating the balls of this pilot group. There is no way there is going to be a mass exodus if the contract gets thrown out. People are not just going to up and leave at a moment's notice. You make it sound like guys are going to quit just for the principal of the thing. Sure guys are going to leave, but not until they have something lined up. The smart guys are already working on it. The lucky ones already have and the guys with the most balls and going to stay.

Yup, most people quit when they find a better job, not when the job they have gets worse.

The "better jobs" out there aren't going to be handed out like candy to the entire pilot group. People will consider more places to be worth leaving for but it still takes a lot of time to get hundreds of pilots interviews, positions, etc. People will leave, and probably at a rate that makes management thrilled.

Very much this.

FOs and maybe some junior Captains. But a senior guy who is topped out at the new -200 max rate of 77/hr is still making 80 grand or more. So if this guy quits, how is he going to supplement his income back to what he was making? I see the junior side bailing, senior side....?

Oh man, Colnago, you're avatar makes me vomit periodically.

Well, since you asked. I just turned in my resignation a week ago and I'm a 13 year 900 captain.

However, I can do it because I continued my professional development over the past 7 years and I decided that my time, my quality of life and my family is worth more than $86 per hour in the airline world.

I got my MBA, PMP and PMO and am now interviewing for jobs that start at $80,000 per year with most of them between $100k -140k.

To all of you who believed that you didn't need advanced education to safely fly airplanes, I agree. You don't. However, if you want to be in a position of leverage in any negotiation, education goes hand in hand with skill and experience. When you are more marketable, you are worth more and can demand more.

I'm not saying any of this to be condescending, braggadocious or anything similar. I can only share with you this thought; having options is a tremendous feeling. I will never be in a postion where I feel like I have to stay with empolyer again due to circumstances that I can't control. I highly suggest continued professional development to all pilots.

BTW, I'm 42 and married with a child. It can be done and it's never too late.

It was a pleasure flying with all of the Mesaba folks from 2000 on and I was looking forward to flying with the Pinnacle and Colgan folks.

Good luck to all of you and I wish nothing but the best.

I've always enjoyed your posts, sorry to see you go! Best to you and your family! May I ask what career field you are getting into? Or if you'd rather keep it private, PM me? Just curious. I'm always interested in other perspectives.

Thanks for the compliment. I always tried to keep my posting as humorous, accurate and / or informational as possible.

No problem on the job front. I'm currently considering 3 different companies, while still interviewing, as a project management professional. One is an engineering firm that works with the DOD, among other aviation entities, and two others are in the health / pharmaceutical industry. A lot of companies had been outsourcing project management (a career that utilizes almost every aspect of the MBA curriculum from managerial finance, risk management and human resources) but have recently just started their own Project Management Office's for a variety of reasons from keeping intellectual property in house to having more control of deliverables from vendors.

It's a significantly growing field and with an IT background / experience (I've built over 500 PC's and did intricate network installation before joining the cockpit), it's especially attractive.

Could not agree more. A big issue is you were never given the option by your leaders on how you wanted to fight this battle. They decided for you - under protest I might add - that the only way was to negotiate. And this should have happened on the first go 'round IMHO. Now on the second 1113, it's painfully obvious that should be offered as an option.

Make that decision on your own, sure. Make it as an entire group, now that says something no one has ever dared that I'm aware of. Just give us the option to tell our leaders no - we will not negotiate with terrorists.

FROM 3 MONTHS AGO!! Pinnacle is the next ComAir.


FULL PAY TIL THE LAST DAY.

I agree. Where's the funny picture to go with this?

I saw the writing on the wall and jumped ship back in July... I think more should do the same.

That is great

Ahhhhh, there it is. Thank you.