NWA pilots' victory could limit growth for Pinnacle
The tentative agreement with Northwest pilots reserves flying of 77-seat jets and larger planes for the big carrier's pilots.
Liz Fedor, Star Tribune Last update: March 06, 2006 – 11:38 PM
A victory for Northwest Airlines' pilots may be a loss for Pinnacle Airlines, a Northwest regional partner, according to one Wall Street analyst.
Jamie Baker, a J.P. Morgan airline analyst, predicted Monday that Pinnacle's flying for Northwest could be limited to the 44- to 50-seat airplanes it now operates after Northwest late last week acceded to a demand by its pilots that they fly all jets with 77 or more seats. Baker and Pinnacle have said they now expect Northwest to renegotiate its service contract with Pinnacle, offering the smaller airline less-favorable terms. Pinnacle stock dropped 10 percent Monday to close at $6.58 per share.
Under the tentative agreement, there are complex limitations and conditions that Northwest must follow for flying that is done by subsidiaries or regional affiliates with airplanes with 76 or fewer seats, according to Wade Blaufuss, a spokesman for the Northwest branch of the Air Line Pilots Association (ALPA).
Northwest spokesman Bill Mellon declined to comment on the restrictions.
Pinnacle flies 124 regional jets for Northwest. It had to remove 15 planes from service Nov. 1 after Northwest filed for bankruptcy in September.
Northwest has been eager to acquire new airplanes that fall between the 50-seat Canadair Regional Jets (CRJs) Pinnacle flies, and the 100- to 125-seat DC-9s flown by Northwest pilots. The DC-9s need to be replaced, and Northwest is looking at Embraer and Canadair regional jets.
"Northwest appears to have prevailed in the formation of a wholly owned regional subsidiary staffed in large part by Northwest furloughees," Baker said in his report. He estimated that the new subsidiary would operate about 50 regional jets in a two-class configuration, which means passengers accustomed to flying in DC-9 first-class cabins could retain that choice.
In December, Northwest asked several regional carriers, including Pinnacle and Eagan-based Mesaba, to submit proposals to operate up to 126 regional jets with a capacity of up to 76 seats. Pinnacle and Mesaba are discussing their proposals with Northwest management, which has not indicated when jet allocation decisions will be made.
New subsidiary after all?
Northwest pilots fought the outsourcing of Northwest jobs, but Baker's report Monday indicates that Northwest gained the right to establish a subsidiary for regional flying.
The analyst noted that Northwest would need a federal operating certificate for that subsidiary, and he speculated that Northwest might buy an existing certificate. He suggested two possible sources -- the certificate held by Independence Air that recently ceased operations and one held by Mesaba parent MAIR Holdings' small subsidiary, Big Sky Airlines. Montana-based Big Sky was purchased as a growth vehicle by MAIR, but MAIR is prohibited by the Mesaba Airlines pilots' agreement from using Big Sky to fly planes larger than 19 seats.
Before any regional planes are acquired, Northwest pilots must ratify the new agreement that was reached Friday. That contract, which saves Northwest $358 million a year, includes the continuation of 23.9 percent pay cuts for pilots that took effect in November. That cut was on top of a 15 percent pay reduction in late 2004.
Blaufuss said the agreement also includes 1.5 percent pay increases in 2008, 2009 and 2010 and a 2 percent raise in 2011. If Northwest exits bankruptcy this year, the pilots' contract runs through the end of 2010. However, the contract's duration ends in 2011 if the carrier leaves bankruptcy in 2007, Blaufuss said.
The pilots have not set a date for the ratification vote.
Key IAM votes
Members of the International Association of Machinists and Aerospace Workers (IAM) finished voting on a new contract Monday. About 14,000 ground workers at Northwest are represented by the IAM.
They have been voting on a tentative agreement over the past month.
Bobby DePace, District 143 IAM president, said "none of us are happy" about the concessionary contract. He added that negotiators tried to "save as many jobs as we could."
The contract includes 11.5 percent pay cuts, the outsourcing of work in some smaller stations and up to 20 weeks of severance pay for people who lose their jobs.
Results of the IAM vote are expected to be released later this week.
Liz Fedor • 612-673-7709
