Days after handing out executive pay increases, Pinnacle files for bankruptcy

By Michael Garko, In Airline News

(added comments by lawmakers and Pinnacle 4/17/12)

Regional contract-carrier Pinnacle Airlines filed for Chapter 11 bankruptcy protection Sunday afternoon amid high labor costs and increasing fuel prices.

Courtesy Pinnacle

A majority of Pinnacle’s flights operate under the Delta Connection brand to East Coast markets using a fleet of Bombardier CRJ200 and CRJ900 jets.  Pinnacle also does contract flying for United Airlines and U.S. Airways.

“We intend to use the Chapter 11 process to reset our financial and operational structure in order to position Pinnacle for viability over the long term” said Pinnacle president and CEO Sean Menke. “Quite simply, our current business model is not sustainable, as increasing operating expenses, liquidity constraints, business integration delays and difficulties associated with combining our operations have hindered our ability to maximise our growth potential.”

Despite the airline’s supposed need to “reset” their financial situation, the Memphis Business Journal writes in a March 21 article that Menke was given a 60% pay raise from $425,000 to $675,000 along with executive vice president John Spanjers receiving a 45% raise from $275,000 to $400,000 last month.  The significant executive pay increases came just days after Menke put in place a 5% permanent pay cut for pilots in late February.

Flightglobal.com states that “the airline had warned in recent months that filing for Chapter 11 could be inevitable, as it struggled to win agreements from its labour unions on pay cuts. Pinnacle announced a cost reduction programme in December 2011, following a third quarter pre-tax loss of $5 million.”

According to a Reuters report, Pinnacle will look to end its contract flying with United by Aug. 1.  Pinnacle’s United Express flights are operated by its subsidiary Colgan Air, which also filed for Chapter 11.  Pinnacle will also restructure its contract with Delta and “look to achieve workforce cost savings by seeking wage reductions and other concessions from labor unions”.

The Memphis-based airline is already in the process of winding down flight operations for U.S. Airways.

The Associated Press shared just how difficult the industry has been over recent years:

With Pinnacle’s filing, one-quarter of the regional airline industry market is in bankruptcy protection. American Eagle filed along with American Airlines under parent company AMR Corp. in November. …

Pinnacle’s filing marks the 43rd time an airline has sought bankruptcy protection since the Sept. 11 attacks, and the 191st time since the industry was deregulated in 1978. Several airlines have gone through the process more than once.

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RESPONSE BY LAWMAKERS AND PINNACLE:

According to the Buffalo News, three members of the House of Representatives from the Bufflao area and both New York Senators sent a letter to Pinnacle showing their displeasure about the pay increases.

“It is reprehensible and unconscionable that your company would shortchange its pilots, who are critical to the safety of the flying public, while approving hundreds of thousands of dollars in extra payment for its corporate officers,” wrote the lawmakers in their letter.

In response, Pinnacle wrote back to the lawmakers saying:

“Both executives have vast experience navigating through the Chapter 11 process, and the board determined it is in the best interests of Pinnacle and all of our stakeholders to appropriately incentivize two executives who play vital roles in the future of this company.”

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