Pinnacle 1113 Hearing Concludes, Judicial Decision Pending

Pinnacle’s Section 1113 hearing ended Friday, October 19, with both sides presenting their closing arguments. Prior to the statements, Judge Robert Gerber provided the parties with an outline of concerns he expected the parties to address.

At the start, Judge Gerber pointed to the liquidity issues Pinnacle currently faces as a critical concern in this case while questioning how responsive the various proposals that have been made are to both the short-term crisis and long-term health of Pinnacle.

Along those lines, he sought more information about Delta’s role in reducing Pinnacle’s utilization (a key factor in the current crisis), how that could occur in the future, and the impact of “commoditization” of regional flying. He also expressed concern about Pinnacle’s proposed terms initiating a “race to the bottom” in the regional industry and that the next carrier in bankruptcy would be forced to set a new, even lower floor.

Attorneys for the company presented their arguments first. In their arguments they reviewed the key elements that the parties must demonstrate to prevail in an 1113 motion. The critical elements are:

• Necessary to the successful reorganization of the company
• Fair and equitable to the parties
• Management has met and conferred and bargained in good faith with the union
• The union did not have good cause to reject management’s proposal

Representing ALPA, Tom Ciantra of Cohen, Weiss, and Simon, LLC, addressed the numerous problems with Pinnacle’s approach to the bankruptcy negotiations thus far. Ciantra stressed that ALPA is interested in reaching agreement with Pinnacle but that a real target is needed. He suggested that Pinnacle should return to Delta and identify a real, substantiated amount of relief needed to exit the bankruptcy. Without any certainty on the amount of relief actually needed by Pinnacle, it would be difficult for ALPA to successfully complete negotiations.

In addition, he pointed out that Pinnacle’s proposals are not attached to any new business plan for the future. Namely, no firm offer has been made that Pinnacle will receive additional flying or add a new codeshare partner should the pilots grant the concessions under consideration. With that disconnect, the pilot group would be unlikely to support the demands of management.

Ciantra also engaged in a detailed discussion of the relationship between Pinnacle and Delta, especially in light of the “cost” gap Delta allegedly identified. He recited the testimony from the hearing: that Pinnacle provided Delta with a pilot benchmarking analysis in March; that Delta signed new ASAs with Pinnacle at the end of March apparently without doing any benchmarking of Pinnacle; and that following communication from Delta about the cost gap, Pinnacle sought to corroborate, not challenge, Delta’s analysis.

Ciantra posited that any suggestion Delta signed agreements in March that are significantly above market, costing Delta tens of millions of dollars over the next 10 years, beggars belief. In addition to Delta signing the new ASAs, Pinnacle’s consultants from Seabury Group and Barclay’s Capital both agreed and testified that they believed the May plan for cost reductions were adequate under the new ASAs to allow Pinnacle to emerge from bankruptcy and become profitable.

In his final summation, ALPA counsel requested that the court deny Pinnacle’s motion to impose its 1113 term sheet and order the parties to continue bargaining.

Judge Gerber has until mid-November to render his decision.