Northwest Settlement Gave Pinnacle Cash to Do Delta Deal

In December, Pinnacle Airlines Corp. will begin flying Delta Air Lines flights out of its hubs, capping a deal in the works for months and positioning Pinnacle to operate from a more diverse platform.

Monday, the day Delta emerged from bankruptcy, Pinnacle said it had signed a 10-year deal with Delta to fly feeder routes on 16 76-seat regional jets Pinnacle is in the process of purchasing.

"We look forward to a long-term partnership with Delta, and we appreciate the confidence that they have placed with us," said Phil Trenary, president and chief executive.

The planes - Canadair Regional Jets-900s, built by Bombardier Aerospace - list for $34 million apiece.

They are configured to offer first-class and coach seating, a first for Delta's regional flying partners, and part of its post-bankruptcy strategy to be streamlined and facile.

Memphis-based Pinnacle will receive the planes over eight months, starting in November.

"We needed to really make sure we had cost-competitive regional flying that meets the flexibility needed by our network," said Lisa Gagnon, Delta spokeswoman.

Last year, Delta sent out requests for bids for its regional flying. With the Pinnacle announcement, it now has nine carriers - including wholly owned subsidiary Comair - on its Delta Connection team. They shuttle passengers from feeder cities to Delta's hubs in New York, Atlanta, Salt Lake City and Cincinnati.

"We need to make sure we have the best flying at the lowest cost. Pinnacle met our needs and our cost needs," Gagnon said.

Having more partners and more planes lets Delta shrink and grow quickly to meet the needs of the marketplace, a lesson it learned in bankruptcy.

While the terms of the deal were not announced, Delta will sell the seats, provide the marketing and ground handling. Pinnacle will be responsible for the rest.

"What we're known for at Pinnacle is performance," Trenary said. "No one can touch us on performance. That's what we have to sell."

Pinnacle expects it will hire about 30 flight attendants to staff the Delta flights. But because the planes will be based in other hubs, the airline's local employee count won't change.

The chance to diversify comes at an opportune time for Pinnacle, which until this year flew solely as an Airlink partner for Northwest Airlines. In that arrangement, Northwest provided the planes, fuel and bookings, and targeted a 10 percent operating margin.

When Pinnacle signed a new deal with Northwest in late December, the price of its stock jumped 57 percent after trading around $6 for much of the year.

Although the new deal allowed Pinnacle to continue flying 139 of Northwest's 50-seat regional jets, it cut the pay almost in half with the caveat that Pinnacle could seek other partners.

Within weeks, Pinnacle announced it had paid $20 million for Colgan Air, the family-owned commuter based in the Northeast with contracts with US Airways, Continental and United airlines.

A month later, in early February, Pinnacle announced it was buying 15 74-seat Bombardier Q400s for a 10-year contract it had just signed with Continental Airlines out of its expanded hub in Newark, N.J.

"The diversification strategy at Pinnacle is coming along quite nicely," said Doug Abbey at The Velocity Group, an aviation consulting firm in Washington.

"Delta had any number of potential partners that can operate these airplanes." Pinnacle won the bid, because "it runs a highly regarded and competitive company."

Trenary said, "This is huge for Pinnacle. It's bigger planes and a new customer.

"The affirmation is what our employees have been looking for. It's so so important to our people. They've worked hard for this. We will be growing and hiring."

The CRJ-900 makes the transition easier because it is similar to the CRJ-200s Pinnacle flies for Northwest, including that more than 90 percent of its parts are the same.

"It's not the same teething pains of a brand-new plane. Pinnacle will be able to integrate it immediately. And a more common fleet costs less to maintain. It's a very productive way to grow," Abbey said.

The news acts as a counterbalance to the contraction Pinnacle experienced late last week when Northwest said it would be reassigning 15 50-seat planes to wholly owned subsidiary Mesaba Airlines because Pinnacle had not met the March 31 deadline for getting a deal with its pilots.

Because the planes were not committed to Pinnacle on a long-term basis, Pinnacle is entitled to the full amount of its unsecured $42.5 million claim.

Pilot union spokesman Wakefield Gordon doubts the Delta deal will do anything to "push the labor agreement to a conclusion.

"But I will say that management did a good job of putting together a strategic deal on this. They gave planes with an OK-profitability back to Northwest and got cash that allowed them to make the Delta deal. That's good strategic decision-making."

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Pinnacle Airlines

President, CEO : Phil Trenary

Address : 1689 Nonconnah Blvd.

Memphis employees : About 1,000

Stock price : Nearly tripled since late August. Closed Monday at $16.37, down 3 percent.

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