Skift Take

The Pinnacle-Delta deal is another sign of U.S. airline consolidation in which it is no longer economically viable for regional carriers to run small jets for multiple airlines.

Pinnacle Airlines Corp. won approval Wednesday to leave bankruptcy and Memphis behind.

Judge Robert E. Gerber of U.S. Bankruptcy Court in Manhattan approved a Chapter 11 reorganization plan that will allow Pinnacle to emerge from bankruptcy as a wholly owned Delta Air Lines subsidiary.

Pinnacle filed bankruptcy April 1, 2012, saying its survival was threatened by escalating costs of labor and fuel and an increasingly anemic flow of revenue from major airline partners.

Under court supervision, the company extracted wage cuts from pilots and other unionized employees and negotiated a deal to go forward with a smaller fleet of larger regional jets flying exclusively for Delta.

Court approval freed Pinnacle to begin moving out of One Commerce Square in Downtown Memphis around May 1, ramping down an operation that had as many as 600 employees two years ago.

Pinnacle said in a statement: “The Bankruptcy Court’s approval of our plan of reorganization represents an important milestone in our restructuring. Pinnacle Airlines is now free to emerge from Chapter 11 as a restructured airline and a wholly-owned subsidiary of Delta Air Lines. The projected date to emerge is May 1.”

Pinnacle’s departure will write the final chapter of the carrier’s 16-year history in Memphis. It came to Memphis from Atlanta in 1997 as Express Airlines I, a Northwest Airlink provider, and became Pinnacle after an initial public offering a decade ago.

The company grew into a $1 billion-plus enterprise in nine years, adding Colgan Air and Mesaba Aviation to its holdings and diversifying to provide regional flights for US Airways and United/Continental, in addition to Delta, which absorbed Northwest in 2008.

But industry consolidation and permanently higher jet fuel prices took a toll on Pinnacle’s once-successful business model, in particular rendering smaller jets and turboprops, aircraft that carry 50 or fewer passengers, obsolete.

Pinnacle’s agreements with Delta call for it to operate 81 70-seat regional jets post-bankruptcy and eliminate 50-seat jets, the former workhorse of its fleet. Pinnacle had 40 CRJ-900s, a 70-seat plane, and 140 CRJ-200s, a 50-seat plane, last year.

The company faces a May 31 deadline to be out of the former bank building at 40 S. Main, where it moved corporate workers and flight operations centers in 2011. As part of the reorganization, Pinnacle is breaking its lease on 170,000 square feet of office space, about half the building’s total occupancy.

Company officials haven’t said how many employees would make the move from Memphis to the Minneapolis-St. Paul area.

In the statement Wednesday, airline officials said: “Pinnacle’s headquarters move to Minnesota is on schedule and we expect to be out of One Commerce Square and the move completed by the end of May.”

Pinnacle has held two job fairs in Minnesota in recent weeks in preparation for hiring about 350 employees, including 100 flight attendants. The number of employees in Downtown Memphis was estimated at about 500 after cost-cutting measures thinned the ranks last year.

The company’s new headquarters at the Minneapolis airport is space that Delta has under long-term lease.

Pinnacle also plans to ditch a board of directors that includes two Memphis business people, former Airport Authority chairman Jim McGehee and Phil Shannon, a retired partner of KPMG LLP, who is board chairman at the Regional Medical Center at Memphis.

(c)2013 The Commercial Appeal (Memphis, Tenn.). Distributed by MCT Information Services.


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Tags: delta air lines, pinnacle airlines, regional

Photo credit: Delta Air Lines Airbus A319 and a small Pinnacle Airlines Bombardier flying for Delta at Memphis International Airport. Flickr

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