VOL. 127 | NO. 64 | Monday, April 02, 2012
Pinnacle Bankruptcy Points to Dramatic Change
By Bill Dries
Memphis-based Pinnacle Airlines Corp. will end its Colgan Air subsidiary and stop flying regional flights for US Airways and United Air Lines by the end of the year.
The company announced the changes late Sunday, April 1, as it filed for federal bankruptcy protection in the southern district of New York.
The changes, along with a new financing agreement with Delta Air Lines Inc., must be approved by the court.
Pinnacle executives are expected to have more comments on the filing during a 10 a.m. conference call.
The bankruptcy filing allows the regional air carrier to continue operating as it continues a corporate restructuring that began late last year.
Pinnacle President and CEO Sean Menke has said since then that bankruptcy reorganization has been an option as the company sought to change its business model and move away from smaller jets, which had become more expensive to operate with the rapid rise in fuel prices.
When Menke hired a consulting firm and a law firm to begin the restructuring, Pinnacle stock prices plunged below a dollar a share, but have since recovered.
Menke described the court filing as “the only feasible course of action to implement our turnaround plan.”
“Quite simply, our current business model is not sustainable, as increasing operating expenses, liquidity constraints, business integration delays and difficulties associated with combining our operations have hindered our ability to maximize our growth potential,” he added in the written statement.
In announcing its move to bankruptcy, Menke announced Pinnacle has a commitment from Delta Air Lines Inc. to put up $74.3 million. With court approval, $44.3 million of that would be used by Pinnacle to repay a promissory note that Delta holds. The rest would be added to whatever Pinnacle generates from its operations to keep the carrier flying and continue the restructuring.
The next steps in the plan include winding down operations of its Colgan Air subsidiary’s Saab 340 fleet by a target date of Aug. 1. Colgan’s Q400 aircraft would be phased out by Nov. 30.
Pinnacle is also asking federal regulators to accelerate finding new carriers for markets Colgan Air intends to leave – the markets where Colgan flies the Q400 for US Airways.
Pinnacle had already filed withdrawal notices with the U.S. Department of Transportation in the Essential Air Service markets involved. Those are markets the federal regulators have determined must have some kind of air service. A carrier that intends to leave an EAS market must delay leaving until a replacement carrier can be found.
In a letter to employees, Menke said the company expects to continue paying them and provide benefits without interruption.
“But that does not mean it will be business as usual at Pinnacle,” he wrote. “In fact, our organization must make major changes to remain viable.”
Pinnacle lists more than $1.5 billion in estimated assets and more than $1.4 billion in estimated liabilities.
The list of creditors with the 50 largest unsecured claims is led by United Airlines, in the form of its contract with Pinnacle. The largest non-contract creditor is Standard Aero of Winnipeg, Canada, for aircraft maintenance parts and services totaling $3.7 million. That’s followed closely by Accommodations Plus International of Lindenhurst, N.Y., for $3.6 million in crew hotel charges.