Northwest Purchase Creates 'Internal Competition' for Memphis Partner

As early as this year, Northwest Airlines could be flying a new subsidiary analysts say will help it phase out its inefficient DC9s.

But a Northwest-owned fleet of smaller jets raises questions about the future of Memphis-based Pinnacle Airlines. Not only is it possible the subsidiary will take business from Pinnacle, analysts say it also could mean that Pinnacle will forever be a 50-seat-plus carrier with no room to grow.

"The worse-case scenario is that Pinnacle can't grow. This is not the best news for Pinnacle," said Terry Trippler at Cheapseats.com.

Late last week, Northwest said it had paid $2 million for the operating certificate at bankrupt FLYi Inc. (former Independence Air), jump-starting its plans to fly its own subsidiary.

"It was a brilliant strategy," said David Field, editor of Air Line Business magazine. "With one very cheap swoop, it makes the new airline very close to reality."

The certificate gives Northwest Federal Aviation Administration approval and FCC licensure. It also includes manuals and some proprietary software.

"Pinnacle now has internal competition," he said. "Northwest could say, 'we're going to rebid all your routes; you have to make a new offer.' "

The deal is contingent on FLYi receiving higher offers and Northwest obtaining necessary government approvals. Rival bidders have until Friday to submit offers.

But the real contingency, analysts say, is getting approval from Northwest pilots on the tentative agreement both sides hammered out under duress in bankruptcy court.

In the deal, Northwest pilots give up $358 million a year in pay, benefits and work rule changes. Pilot negotiators agreed to let the regional carriers fly planes of up to 76 seats.

Under their current contract, Northwest pilots fly all planes with 55 or more seats. If the pilots don't ratify the agreement, the subsidiary flying would have to go to regular NWA pilots.

Union leaders will decide this week if they will recommend pilot approval of the agreement, said Will Holman, union spokesman.

"Given what's happening, Northwest pilots have the veto power on the subsidiary," said aviation consultant Doug Abbey at The Velocity Group.

"I don't think Northwest can fly these routes cheaper," he said. "But ultimately, labor comes at a price, and it looks like both sides have agreed to the price."

Experts say Northwest agreed to staff the subsidiary with recalled furloughed pilots to appease the Air Line Pilots Association, the union that represents Northwest's 6,800 pilots. NWA has 700 pilots on furlough.

Initially, Northwest intended to start a subsidiary it would have flown with non-Northwest pilots.

The issue was a key obstacle in negotiations. The compromise subsidiary, while it includes pay cuts for the pilots, at least preserves jobs.

Abbey and other experts expect Pinnacle ultimately will fly 40- to 76-seat planes for Northwest.

Late last week, Pinnacle CEO Phil Trenary said he could not comment on specifics because the company is negotiating with Northwest.

"Northwest's priority right now is keeping its pilots flying," Abbey said.

"The Air Line Pilots Association made it very much a point that additional flying would accrue to their members."

-Jane Roberts: 529-2512

News stories provided by third parties are not edited by "Site Publication" staff. For suggestions and comments, please click the Contact link at the bottom of this page.