Delta To Sell Mesaba, Compass Subsidiaries

 - July 1, 2010, 9:49 AM

Delta Air Lines announced today that it has entered into definitive agreements to sell two of its wholly owned regional airline subsidiaries-Minneapolis-based Mesaba and Compass Airlines. Delta said it has sold Mesaba to Memphis, Tenn.-based Pinnacle Airlines for $62.0 million, and Compass to St. Louis-based Trans States Holdings for $20.5 million. Delta said it would use the proceeds from these transactions for general corporate purposes.

Under the terms of the agreements, Mesaba and Compass will continue to serve Delta customers with long-term, extendable agreements, ranging from seven to 12 years depending on aircraft type. Both Mesaba and Compass will continue to operate from their present headquarters in Minneapolis-St. Paul, under the leadership of both current presidents, John Spanjers and Tim Campbell, respectively.

“Today's announcement reflects our continued focus on streamlining the portfolio of Delta Connection carriers serving our customers to ensure each partner airline is independently positioned for success with a competitive cost structure and an industry-leading focus on safety, reliability and customer service,” said Delta Connection senior vice president Don Bornhorst.

“In recent years, the Delta Connection carriers have made substantial progress in creating a consistent customer experience across our brand with more first class cabins, enhanced food service, jet bridge boarding and other amenities Delta customers expect when they fly Delta or Delta Connection flights,” he added. “This transaction is another step in positioning our regional airlines for future success and we look forward to delivering even more improvements to customers in the more than 260 communities our partners serve.”

Under the terms of the sales, Delta will enter into new Delta Connection agreements with Mesaba and Compass. Plans call for Mesaba and Compass Airlines to operate as wholly owned subsidiaries of Pinnacle Airlines Corp. and Trans States Holdings, respectively. Delta said it did not expect the transactions to result in any changes in flight schedules or locations served. 

With the addition of Mesaba's airplanes, Pinnacle Airlines' total fleet now consists of 202 regional jets, including 57 Bombardier CRJ900s, 145 CRJ200s, 14 Bombardier Q400s and 66 Saab 340s. The company expects its wholly owned Colgan Air subsidiary to take delivery of the first of 15 new Q400 this month, and begin operations out of Houston with the 74-seat turboprops in mid-September. Pinnacle also holds purchase options for another 30 Q400s.

Under the terms of the transaction, Pinnacle and Delta established a new 12-year capacity purchase agreement effective July 1, for the operation of Mesaba's CRJ900 fleet. The companies modeled the new CRJ900 agreement after Pinnacle's existing agreements with Delta, providing for targeted levels of performance and profitability. Mesaba will continue to sublease its fleet of CRJ900s from Delta for the 12-year term of the related capacity purchase agreement. 

Pinnacle's current service agreement with Delta, which runs through 2017, will govern Mesaba's CRJ200 operations. Pinnacle and Delta also entered into a separate, short-term capacity purchase agreement providing for the operation of Mesaba's Saab 340B+ fleet until they leave the Delta Connection network late next year under Delta's previously announced retirement program. 

Trans States Holdings-the parent company of Trans States Airlines, which operates Embraer ERJ 145s, and GoJet Airlines, which operates Bombardier CRJ700s-has signed a new 10-year agreement with Delta calling for Compass to continue operating as a Delta Connection carrier. Compass operates more than 170 daily flights to 35 airports with its fleet of 36 Embraer E175s and employs nearly 1,000 people. Trans States' and GoJet's nearly 1,400 employees serve nearly five million passengers annually to 69 cities on 330 daily flights. Trans States currently operates flights as United Express and US Airways Express.