Delta, Pinnacle Extend Talks — Regional Carrier Gets Two-Month Reprieve

By Jane Roberts

Pinnacle Airlines has gotten a reprieve, temporarily perhaps, in the termination of its 10-year contract with Delta Air Lines.

In early June, Delta said it would nullify the contract July 31, citing poor performance from Pinnacle for on-time arrivals.

In a financial filing Friday, Pinnacle said the time frame had been extended to Sept. 30 as the sides work to resolve the issue amicably.

“There are opportunities available to Pinnacle; we are in the process of exploring what they might be,” said Delta spokesman Anthony Black. “We could agree Delta was right or that Pinnacle was right or do X, Y or Z.

“All we are doing is working toward a mutual agreement.”

Pinnacle shares fell 18 cents, or 5.57 percent, on Friday.

Pinnacle has said repeatedly that Delta’s schedule was too tight to allow Pinnacle to perform well. With only nine planes, a few late departures or arrivals quickly added up to big percentages, putting Pinnacle behind the eight ball.

Delta alleged similar issues with Mesa-owned Freedom Airlines when it said it was terminating its contract this spring.

Mesa won a preliminary injunction in late May in federal court that temporarily stalled Delta.

Phil Trenary, chief executive at Pinnacle, said that he would not seek an injunction, saying he didn’t believe meaningful relationships were worked out at the courthouse.

The Delta contract, effective Dec. 1, 2007, was to expand from a single CRJ-900, a 76-seat aircraft built by Bombardier Aerospace, to a fleet of 16.

At this point, Pinnacle has nine planes dedicated to Delta, flying about 50 daily routes to cities such as Buffalo, N.Y., and Pittsburgh for $3.5 million a month.

“Don’t kid yourself. Delta is putting the squeeze on Pinnacle,” said Michael Boyd, principal at The Boyd Group in Evergreen, Colo. “These are bigger regional jets, but they are still planes Delta would rather not have.”

As fuel edges up to $150 a barrel, the economics of small jets are plummeting because they mean airlines have fewer passengers to absorb the costs.

While 76-seat planes make more sense than 50-seat planes, Delta already owns regional carrier Comair. Last week, it announced it was parking 14 planes.

“This is panic time,” Boyd said. “Airlines are looking at their route systems. They’ll be taking hacksaws to them in the next two weeks.

“We’re not going to see 150 cities lose air service. But we will will see traffic thin out, very rapidly,” he said.

The flying Pinnacle does for Delta today represents about 4 percent of Pinnacle’s revenue. Symbolically, it is much more important because it was the proof Pinnacle needed that it could stay alive, even prosper, without Northwest Airlines.

Until Northwest began to plan its exit from bankruptcy in 2007, Pinnacle was bound by contract to fly only for it, essentially providing crews and front-office expertise for Northwest, which owned the planes, provided the fuel and sold the tickets.

The arrangement is essentially the same at Delta, except that Pinnacle owns the planes. While analysts expect Pinnacle will be able to find other customers for the 76-seaters, it also has a fleet of 50-seat jets in abundant oversupply in the industry.

When news broke June 10 that the Delta deal was falling through , Pinnacle stock fell 26 percent as investors absorbed the implications for Pinnacle in light of the pending merger between Delta and Northwest.

Northwest is Pinnacle’s largest customer, providing 75 percent of its revenue.

“Pinnacle could be impacted by the pending merger,” said George Hamlin, aviation consultant at ACA Associates in Maryland. “Pinnacle showed it could diversify, but the environment has changed. If Northwest becomes part of Delta, Delta’s decision-making will be paramount.”

Contact Jane Roberts at 529-2512. To read more stories by this reporter, click on “Contact Us” at commercialappeal.com, then click on the reporter’s name.

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Shareholder votes set

Northwest shareholders will vote on the proposed merger Sept. 25 at the airline’s annual meeting in New York.

Delta shareholders will decide the same day whether to issue Delta common stock to Northwest shareholders and if they should amend the Delta 2007 compensation plan.

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Originally published by Jane Roberts robertsj@commercialappeal.com .

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