Pinnacle Airlines, one of the larger regional operators in the United States, filed for bankruptcy protection late on Sunday. The carrier operates under a contract basis for Delta Airlines and, to a lesser extent United Airlines and US Airways. The company outlined plans to continue normal operations for the immediate future, thanks in large part to an investment by Delta reported at $74MM of which $30MM is new capital with a 12.5% interest rate, as well as longer-term plans to cut some of the less profitable services offered.
Facing aggressive cuts by the mainline carriers they contract for, Pinnacle claims it can no longer meet its operational needs in the current financial climate:
The result has been a race to the bottom, as the debtors and other regional airlines have been forced to bid ever-lower rates and accept increasingly unfavorable contract terms to win the business of major carriers,
The company also claims that part of its struggle stems from the inconsistent income patterns realized due to its operational agreements with the mainline carriers:
The Debtors‘ monthly cash flows fluctuate significantly within any given month because of variances in the amount and timing of payments due to and from the Debtors under their operating agreements, including the Delta Connection Agreements.
Their current cash position – about $45MM – is apparently insufficient to see them through the next couple months without this restructuring.
Pinnacle has been in trouble for several months now and has been working since late 2011 to restructure its operations in an effort to remain in business. In the filing they cite an inability to negotiate concessions with ALPA as the catalyst for their inability to restructure deals with Delta and United outside the auspices of the bankruptcy process.
While the company plans to operate normally in the coming days, they also intend to make significant operational changes in the coming months regarding their contracts with carriers. With Delta, the filings indicate an extension of the CRJ-200 Agreement, suggesting that those aircraft will remain in service for Delta beyond the current 2017 expiry. At the same time, they claim that the CRJ-900 flying is unprofitable and that it must be curtailed or renegotiated. To that end, the CRJ-900 aircraft currently operating for Delta will be removed from service in the first half of 2013.
For United the company plans to cease operations of its Saab 340 and Bombardier Q-400 turbo-prop fleets by July and November 2012, respectively. The prop fleets operate under a fixed-fee capacity purchase agreement set to run through 2021 at a rate which Pinnacle says is unsustainable over the long term. The company claims losses in excess of $11MM in 2011 on their contracts with United, with no relief in sight, save for rejecting the contracts. United recognized the issues earlier this year and temporarily granted higher rates to the company for operations but that deal expired and said expiry was one of the reasons cited for the filing.
Some of the ERJ-135 aircraft previously operated by ExpressJet for Continental have made it back in to the schedule replacing the Saab 340s so at least some of the contingency plans are already in place. It remains to be seen what other operational changes will be made following this news.
Sadly, despite the date of the filing, this is not a joke. The overall impact of these changes remains to be seen, but it is clear that United will be searching for a new operator of services for a number of aircraft and routes in the immediate future. If you want more of the nitty gritty details check out the docket filings here. They’re great if you’re suffering insomnia.
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