Jan. 25--The hammer fell Thursday on one of Downtown Memphis's biggest success stories in 20 years as Pinnacle Airlines Corp. announced it will take hundreds of jobs to Minneapolis.
Ending months of speculation, Pinnacle said it would move headquarters to the Twin Cities airport as part of its exit from Chapter 11 bankruptcy this spring.
The company said it hadn't determined how many of 500 workers would make the move.
The announcement hit city leaders and owners of the iconic office tower hard.
"It's certainly a punch in the gut at the moment," said Gary Prosterman, a partner in One Commerce Square at 40 S. Main.
Pinnacle had barely moved into the building, climaxing a much ballyhooed civic success story, when the airline fell on hard times in the fall of 2011. Its departure will leave 11 floors vacant.
"It's bad news for Memphis, bad news for Downtown, and it's heartbreaking," said Downtown Memphis Commission president Paul Morris. "We spent a lot of time and effort to recruit Pinnacle's headquarters to Downtown Memphis, and it's heartbreaking to hear that they're leaving."
The building's local owners made an "extremely aggressive and flexible" bid to keep Pinnacle, including offers to adjust rent and lease terms such as duration and the amount of space, Prosterman said.
Pinnacle, which had been known to be looking at relocation since last spring, said, "Our analysis covered everything from the available labor pool and operational alignment to economic incentives. Both Memphis and the State of Minnesota presented very strong cases. In the end, it was an economic decision."
Prosterman said, "Everyone put forth the full-court press to try to keep Pinnacle." He called the decision "definitely a head scratcher."
The decision can be linked in part to business decisions of one of the Memphis community's current corporate villains, Delta Air Lines. As Delta has ratcheted down flying from its hub at Memphis International Airport, Pinnacle's regional jets have increasingly been diverted to other points in the Delta network.
The number of Pinnacle flights from Memphis is about a third of what it was before the Delta-Northwest merger in 2008, a reflection of Delta's changing network and decision to cut flying by inefficient 50-seat regional jets. Pinnacle also is closing an aircraft maintenance base here.
"It just didn't make sense for them to be in Memphis anymore," Morris said.
Morris defended the local incentives for the Pinnacle-One Commerce Square deal as necessary to keep the 29-story tower from going empty, and he said Pinnacle won't leave taxpayers holding the bag.
"The only incentive that was given to Pinnacle Airlines by the city of Memphis was free parking," he said. "The good and bad news is when they're not here, they can't use that parking."
Mayor A C Wharton said he was "disheartened" by Pinnacle's decision, but sought to minimize the financial incentives offered to bring the company's headquarters downtown.
"Pinnacle did not receive any funds from the city of Memphis," Wharton said. "The commitment from the city was to the Center City Revenue Finance Corp., a public agency, which in turn made a subgrant to the Downtown Parking Authority, which in turn leased the parking spaces to the ownership group."
"The building has been improved, but not with public money," Wharton said. "The public money went into getting the garage. That's the extent of the city investment from the CCRFC."
Wharton said he is optimistic that new tenants will occupy the space vacated by Pinnacle.
Pinnacle was the biggest corporate headquarters relocation Downtown since AutoZone in 1995.
It's unclear how many workers could be affected. Pinnacle moved more than 600 workers Downtown in 2011 and listed current main office employment at 500. Downtown officials believe it's closer to 400 based on parking data, and Twin Cities news outlets reported that relocation would bring about 200 jobs.
Because the company would be a third of its former size post-bankruptcy, industry experts have speculated the headquarters staff could be cut in half.
The company won Bankruptcy Court approval last week of agreements that provide a clear path to survival as a Delta Connection carrier and wholly owned subsidiary of Delta Air Lines or an affiliate.
Building owners include Southland Capital's Terry Lynch and Karl and Gail Schledwitz and AutoZone founder Pitt Hyde's investment firm. They bought the building from U.S. Bank in Minneapolis for $7.6 million and spent $20 million restoring it as prime office space. They reaped a variety of public incentives, including tax abatement, by landing Pinnacle as anchor tenant and keeping the company from moving to suburban Olive Branch.
Now, Prosterman said, it's back to square one. The building will go from 85 percent occupied to about 48 percent, but with noteworthy tenants including Great American Steamboat Company and iBank, which has naming rights. It was about 30 percent occupied before the Pinnacle deal.
"There's no good news. I'm not trying to spin it, but Pinnacle's leaving is not going to change the ownership's commitment to Downtown Memphis or the building," Prosterman said.
David Smith, a spokesman for Tennessee Gov. Bill Haslam, said, "Local officials on the ground worked incredibly hard to keep Pinnacle in Memphis, and we supported their efforts, so it's disappointing. The administration will continue its focus on recruiting businesses to and expanding existing businesses here in Tennessee."
Hotels, restaurants and other businesses expect to feel an impact immediately in May when the airline pulls out. Pinnacle workers frequently dined at places such as Automatic Slim's and Flight Restaurant.
"I think it will impact all businesses downtown," said Joshua Tidwell, Flight assistant general manager. "Pinnacle is pretty big. How big the impact will be I don't know. We do have lots of other guests come in.''
Also lost will be Pinnacle employees flying into the city for training and board meetings. The training function had been hailed as a boon to local hotels during the push to lure the company Downtown.
Hotel executive Wayne Tabor said Pinnacle's move is certain to depress occupancy rates, particularly following the departure of law firms and downsizing of Morgan Keegan & Co., a recently acquired investment firm that employed more than 1,000.
Mark Herbison, senior vice president for economic development at the Greater Memphis Chamber, said Pinnacle's decision was in no way a reflection of the city's business environment.
"I don't think this is any reflection on Memphis," Herbison said. "We've proven over the last few years we have an incredible business environment and we're one of the best places in the country to do business. I think it's more of a reflection on a contracting airline industry and a company going through serious changes."
In an internal email, CEO John Spanjers told employees "information about relocation packages, severance or retirement packages will be made available to help with any individual decision-making that might be required. I realize that these are not easy decisions and that they affect families as well. We will do everything we possibly can to make this transition as smooth as possible."
Amos Maki contributed to this story.
Copyright 2013 - The Commercial Appeal, Memphis, Tenn.
