Bankrupt Northwest Airlines [NWACQ] is pulling regional jets from its two AirLink regional partners.

Effective Oct. 31, Northwest will ground nine Avro RJ85s flown by Mesaba Aviation [MAIR] and will park 15 Bombardier [BBD] CRJ 200s flown by Pinnacle Airlines [PNCL]. Northwest wants the aircraft grounded as part of its late fall schedule, which will take effect at that time; however, as of press time Northwest had not set the schedule. Neither regional carrier at this time could say which routes would be cut due to the fleet reduction.

Unlike some network-regional relationships, Northwest controls all of the regional aircraft flown by Mesaba and Pinnacle. Northwest either owns the planes or leases them from a variety of finance companies.

At Mesaba, in addition to the schedule change, Northwest has served notice that effective Dec. 20, it intends to return all 35 Avros to its leaseholders. Mesaba spokeswoman Elizabeth Costello said that the scheduled delivery of 15 new CRJ 200s to the regional carrier are now in doubt. Mesaba has already received two of those CRJ 200s, which were to be placed into service this month. However, the delivery schedule of the remaining 13 is not clear, she said.

The Avro makes up one-third of the Mesaba fleet. The carrier also flies 65 Saab 340s. When Northwest awarded the CRJ 200s to Mesaba earlier this year, it was only after it awarded Pinnacle 139 CRJ 200s.

"The removal of the Avros from Mesaba's fleet will result in a substantial decrease in Mesaba's revenue and it will have an adverse effect on the company's financial results," Mesaba reported to shareholders in a U.S. Securities and Exchange Commission (SEC) filing. The company predicted that it would report operating losses in the third and fourth quarters.

The cloud over the future of Mesaba's fleet has led to uncertainty on its labor front. The company has been hiring and training at its expense new crew members for the expected CRJ fleet. Costello said the CRJ pilots include transfers from both the Avros and Saabs as well as new employees. No decision has yet been made on potential Mesaba layoffs due to the fleet reduction, she added.

The trouble for Mesaba is that the newest employees have been hired and trained to fly the CRJs while the carrier's senior-most pilots fly the Avros. A layoff based on seniority could wipe out most of the CRJ-trained pilots.

Northwest on Sept. 26 paid Mesaba $1.6 million of its earlier $28 million claim against the mainline carrier. Northwest said it paid for only those bills that covered services provided by Mesaba after the Sept. 14 bankruptcy filing. In an SEC filing, Mesaba said that Northwest also owes $400,000 for ground-handling services to both Northwest and Pinnacle.

On June 30, Mesaba had about $66 million in cash on hand.

At Pinnacle, Northwest is parking the 15 CRJ 200s the regional carrier flies under the terms of the current code-share pact between them.

In its own SEC filing, Pinnacle said that due to the fleet reduction, the company expects that its fourth quarter revenues will fall by 7 percent and profits will be off by 10 to 15 percent.

Despite the fleet reduction, Pinnacle spokesman Philip Reed said that the carrier still expects to be paid for fixed costs associated with 139 airplanes. It does expect that the portion of the payment tied to actual operations will be reduced, he added.

Although it also has a cash balance of $66 million, Pinnacle last week tapped a $17 million line of credit. "We have exercised our line of credit as a precautionary measure," Reed told Regional Aviation News. With Northwest failing to make $18 million in payments to Pinnacle on Sept. 17, "our cash flow could be reduced to below a level we consider safe." Payments from Northwest due on Sept. 30 and Oct. 17 may be less than billed if Northwest determines that some of the claims are applicable to a time before its Sept. 14 bankruptcy filing.

Pinnacle is the process of "right-sizing" its workforce as its adjusts to a 124-plane fleet. The company last week began offering voluntary leave packages to employees to reduce its workforce without imposing involuntary furloughs.

Calyon Securities analyst Ray Neidl estimates that Pinnacle in the fourth quarter will earn 51 cents per share, down from his earlier estimate of 65 cents per share. Estimated earnings for 2005 are now expected to be $2.03 per share instead of $2.45. Neidl now estimates that the carrier will earn $2.01 per share next year instead of the $2.59 he had earlier estimated.

>>Contacts: Elizabeth Costello, Mesaba, (651) 367-5264; Philip Reed, Pinnacle, (901) 348-4257; Ray Neidl, Calyon, (212) 261-4057.<<