CEO outlines Pinnacle’s challenges

Menke tells employees that bankruptcy may be best

Pinnacle Airlines Corp.’s chief outlined efforts to stop the company’s bleeding Friday, but said Chapter 11 bankruptcy may be the best solution.

President and CEO Sean Menke didn’t say how negotiations were going with labor unions, suppliers, lenders and mainline airline partners, but confirmed the situation is dire.

In a letter to the Memphis-based company’s 8,000 employees, Menke said, “The conclusion is unavoidable — on the current path, our financial position will continue to worsen at an alarming rate: we need to act immediately.”

The letter, incorporated in a U.S. Securities and Exchange Commission filing, was Pinnacle’s first public acknowledgement that it might have to restructure under U.S. Bankruptcy Court protection.

It confirmed what analysts had been saying since Pinnacle announced in December it was pursuing a comprehensive program to reduce costs and boost liquidity.

“It was uncertain before, and it’s just as uncertain now,” said Bob Mcadoo, an airline industry analyst with Avondale Partners.

Mcadoo said the letter acknowledged that certain parts of Pinnacle’s business, particularly contracts with United and Continental, were bigger moneylosers than previous management had indicated.

A bankruptcy filing would put Pinnacle in a long line of airlines that have used Chapter 11 to restructure while continuing to operate and ultimately return to profitability. The parent company of

American Airlines filed in November.

Pinnacle’s troubles come on the heels of the regional airline holding company’s relocation of its headquarters and about 600 employees to One Commerce Square in Downtown Memphis last year. It had previously been based in the airport area.

Menke attributed the financial jam to mainline partner contracts that don’t provide enough revenue, plus organizational growing pains suffered after Pinnacle bought Mesaba Aviation from Delta in June 2010.

The company has been meeting with its pilots and flight attendants’ unions seeking concessions, including 5 percent pay cuts that would also apply to the rest of the organization.

Capt. Tom Wychor, chairman of Pinnacle’s unit of the Air Line Pilots Association, said talks were ongoing, but he couldn’t comment.

Menke’s letter said, “What happens next is not yet clear. Our hope is that we can reach agreement with all of the necessary parties on the changes we need to implement our turnaround plan and ensure the company’s continued viability.

“It is also possible that we may ultimately conclude the best way for us to achieve our goal is to use the courtsupervised Chapter 11 process, which, as you know, many other airlines have used successfully in recent years.” — Wayne Risher:

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