IN FOCUS: Pending pilots deal highlights Delta’s regional contracts

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Published: June 26, 2012

Delta Air Lines will have to renegotiate its contracts with five regional airline groups in order to add 70 76-seat regional jets (RJs) and drop 218 50-seat RJs from its contract carriers, if its pilots approve a new contract.

The Atlanta-based carrier contracts with Pinnacle Airlines and its subsidiary Mesaba, Republic Airlines-owned Chautauqua Airlines and Shuttle America, SkyWest Airlines and its subsidiary ExpressJet Airlines, and Trans States-owned Compass Airlines and GoJet. It also contracts with its wholly-owned subsidiary Comair.

Delta has separate contracts with each regional airline that expire between 2016 and 2020, based on regulatory filings and annual reports from the various carriers.

*Based on Flightglobal Pro research and sources
Source: Flightglobal Pro research

Pinnacle’s contracts cover 140 50-seat Bombardier CRJ200 and 41 Bombardier CRJ900 aircraft. The agreement for the CRJ200s ends on 31 December 2017 but includes an automatic five-year extension to 2022, according to bankruptcy court documents filed in May. It also includes a clause that allows Delta to swap the smaller RJs for ones with 70-seats or more on a one-for-one basis with no penalty. The CRJ900 agreement as well as Pinnacle’s leases on the aircraft ends in 2022, according to Delta’s 2010 annual report and Flightglobal’s Ascend database.

However, both contracts could change considering that the Memphis-based airline is operating under chapter 11 bankruptcy court protection.

Pinnacle flew 141 CRJ200s and 57 CRJ900s under contract for Delta at the end of the first quarter. It will remove 16 CRJ900s that it owns from its fleet during the first quarter of 2013.

Republic has separate contracts with Delta for both its Chautauqua and Shuttle America subsidiaries. Chautauqua’s contract includes 24 50-seat Embraer 145s and expires in May 2016 at the end of 2011, according to Republic’s 2011 annual report. The airline is expected to add up to nine E-140s to replace nine 30-seat Embraer 120s that are flown by SkyWest and will be removed from the fleet by the end of the year.

Shuttle America’s contract included 14 70-seat Embraer 170s and 16 76-seat Embraer 175s though October 2017 and January 2019, respectively, at the end of 2011, according to the annual report.

Delta can terminate its contract with Chautauqua for the E-145s at any time with 180-days notice, however they may be subject to up to an $ 85.2 million charge, according to the annual report. It could also terminate the contract with Shuttle America for the E-175s under similar terms after July 2015 with an up to $ 122.4 million charge.

Chautauqua flew 26 E-145s at the end of March, according to Delta. Shuttle America flew the same number of aircraft.

Bryan Bedford, chief executive of Republic, said that Chautauqua must either lower the costs of its 50-seat operation or consider “other options,” at the Regional Airline Association convention last month.

Delta’s contracts with Compass and GoJet are less transparent due to Trans States being privately owned. Compass operated six E-170s and 36 E-175s at the end of March, according to Delta. Its contract appears to end in 2020 based on a 2010 statement from Trans States and comments from sources.

GoJet’s contract included six CRJ700s at the end of March but covers 12, the rest of which will transition from SkyWest by the end of the year. The aircraft are leased through 2020 from Comair, according to Flightglobal’s Ascend database.

GoJet has a reputation for being one of the lowest cost contract carriers, according to sources at various regional airlines.

The contracts between Delta and SkyWest cover both it and its subsidiary ExpressJet, but include provisions from the airline’s contracts with Atlantic Southeast Airlines (ASA). ASA merged with ExpressJet at the end of 2011.

SkyWest operated 63 CRJ200s, 19 CRJ700s and 21 CRJ900s for Delta at the end of March. ExpressJet operated 93 CRJ200s, 42 CRJ700s and 10 CRJ900s for the carrier at the same time. Both contracts expire on 8 September 2020, according to the St. George, Utah-based carrier’s 2011 annual report.

Delta is allowed to terminate the contracts early with the airlines if they do not maintain competitive base rate costs, according to the report. However, SkyWest has the right to adjust the rates before they can be terminated.

Mike Kraupp, chief financial officer of SkyWest, said that the airline’s main objective is to “meet the needs of our partners” in response to a question on its 50-seater fleet during a first quarter earnings call in May. He added that they are “very receptive and creative” to addressing the number for 50-seaters they fly for their partners.

Comair, as a wholly-owned subsidiary of Delta, is a slightly different case from the airline’s other contract carriers. Delta is in the midst of a previously announced downsizing of the carrier’s 50-seater fleet and that could result in the regional carrier ceasing to exist if its parent decided to use its CRJ700 and CRJ900s as incentives to the independent contract carriers to amend their existing agreements.

The Kentucky-based airline will have 16 CRJ200s, 15 CRJ700s and 13 CRJ900s in its fleet in August.

Delta’s pilots are currently voting on a new labour agreement that would cap the number of RJs in its regional fleet at 450, plus a few exceptions, by the end of 2015. This would include 125 50-seaters, 102 70-seaters and 223 76-seaters, according to the tentative contract. Up to nine 44-seat E-140s and turboprops with 37-seats or less would be exempt from the cap.

The airline would also acquire 88 117-seat Boeing 717-200s to its fleet under the agreement.

There were 343 50-seat RJs, 102 70-seat jets and 153 76-seat jets in the Delta Connection fleet in May, according to an Air Line Pilots Association (ALPA) negotiators’ notepad.

ALPA estimates that Delta will swap out two 50-seaters for every one additional 76-seat jet at its contract carriers.

Delta’s pilots conclude voting on the contract on 29 June.

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