The deal with Pinnacle Airlines lets the regional carrier return all of its 140 aircraft and spare engines to the mainline carrier without performing any of the maintenance that makes the 50-seat planes more attractive for lease or sale.
Delta is shedding 50-seaters from its operations to avoid hundreds of millions of dollars in maintenance costs over the next few years.
Delta is aiming to dispose of more than 200 50-seat aircraft—predominantly CRJs—by the end of 2015 because high fuel costs have made the aircraft unprofitable on many routes.
The agreement between Delta and Pinnacle, detailed in documents filed as part of the regional carrier’s Chapter 11 bankruptcy court restructuring, does not include a schedule for the return of the CRJ200s, noting instead that the two carriers will agree on a schedule, or Delta will provide 90 days advance written notice for when particular aircraft are to be taken out of service and returned.
Pinnacle “will not need to comply with aircraft return conditions for such CRJ200 aircraft and shall have no liability to Delta with respect to the early termination and return of such aircraft,” according to the documents.
Absent that arrangement, Pinnacle would have been compelled under the original lease terms to spend more than $100 million on maintenance and repairs before returning the aircraft, the regional carrier told the court.
The court filings also reveal details for Pinnacle’s tentative labor deal with its pilots, considered critical to the survival of the airline beyond this month and its exit from bankruptcy. The plan is for Delta, which provided the debtor-in-possession financing and currently is Pinnacle’s only customer, to end up with ownership of the carrier upon exit, contingent on approval of the labor concessions.
The pilots union will complete its vote on the deal on Jan. 15.
The labor deal’s reduction in pay and benefits and modifications to work rules will save Pinnacle about $30 million a year once it transitions from 140 CRJ200s and 41 CRJ900s to its new fleet of 81 CRJ900s, with “substantially higher savings” during the transition period.
The tentative deal with the Air Line Pilots Association (ALPA) includes an immediate 9% pay cut with annual pay rate increases of 1% from 2015 to 2019, as well as a lower top-of-scale wage for captains and first officers. It also lowers training pay, increases employee contributions for medical insurance, reduces paid vacation time, cuts 401(k) matching pension contributions, restructures the vacancy-filing process, eliminates certain restrictions on using reserve pilots and changes the ways open time is assigned and paid.
The accord, however, establishes a profit-sharing plan, and ALPA will be granted a general non-priority unsecured claim under the bankruptcy code of about $139 million each against Pinnacle Airlines, Mesaba Aviation and, all Pinnacle subsidiaries.