Northwest Airlines has used its bankruptcy powers to reshape its regional airline network with a distinctly muscular approach that leaves room for the major to establish its own regional subsidiary.

Northwest moved to create its own internal operating unit to fly larger regional jets with lower-paid Northwest pilots, using the prospect of increased flying to pressure its unions into further concessions. At the same time, it exercised its bankruptcy prerogative to withhold payments and flying from two longtime Airlink affiliates, forcing one of them into its own bankruptcy.


Northwest withheld funds owed to both separately owned Northwest Airlink feeders, Mesaba Aviation and Pinnacle Airlines, defaulting on more than $28 million it owed to feeder Mesaba and moving to take back the 85-seat 35 Avro RJ85s and some of the 30-seat Saab 340 turboprops it subleased to the carrier.

In mid-October, exactly a month after Northwest’s Chapter 11 filing, Mesaba parent MAIR Holdings put the regional into reorganisation. Its Airlink service generates two-thirds of Mesaba’s seat kilometres. With the move also coming after Northwest said it would probably refuse to deliver the 13 Bombardier CRJ200s it had promised to Mesaba and would almost certainly take back 10 of Mesaba’s Saab 340s as well, the regional had no choice. A frustrated Mesaba chief executive John Spanjers said: “We worked hard to avoid bankruptcy…but no other alternatives would allow us to change as rapidly as we need to”, and become “a lean airline and offer a product to Northwest that no one can beat”.

Mesaba reached agreement to fly its first modern twinjets for Northwest only in September, after years of negotiation. The status of that agreement now is unclear. Northwest has told creditors it wants to set up its own subsidiary for its mainline pilots to fly 70-seat and larger regional jets.

This is possibly “a solution, at long last, to Northwest’s hated scope clause”, says Velocity Group regionals expert Doug Abbey. He thinks that Northwest is willing to let Mesaba wither if that lets the mainline carrier establish a unit that finally lets it dump its sole presence in the 100-seat arena, its refurbished, but ageing, McDonnell Douglas DC-9s, while keeping its mainline pilots from being furloughed. Were Mesaba to die, Abbey says, “it would be a shame, but Northwest has to play hardball because it has no choice: one way or the other, it would anger one or the other crew contingent.”

Pinnacle, the other Northwest Airlink partner, is healthier. Northwest has requested that 15 of its 139 subleased CRJ200s be removed. That would reduce Pinnacle earnings by as much as 15%, says JP Morgan Securities analyst Jamie Baker. Nevertheless, Pinnacle, the major carrier at Northwest’s Memphis hub, believes it can survive.

In a Securities and Exchange Commission filing, Pinnacle said: “In the longer term, management believes that Pinnacle provides a valuable service to Northwest, and that Pinnacle will be a part of Northwest’s restructured network.” Northwest has made partial payments on its fee-for-service contract to Pinnacle, which will have about $42 million cash on hand by year-end, Baker says.


Source: Airline Business