Pinnacle Files for Chapter 11, Plans To “Wind Down” Turboprop Flying

 - April 2, 2012, 10:15 AM
Pinnacle Airlines' Colgan Air subsidiary flies 31 Bombardier Q400s, now as United Express. (Photo: Bombardier)

Memphis-based Pinnacle Airlines filed for Chapter 11 bankruptcy protection on April 1, marking the start of a process in which it plans to “wind down” all its United Airlines turboprop flying, including its Colgan Air Bombardier Q400 operation. It also intends to restructure its regional jet agreement with Delta Air Lines and gain the release of all its Essential Air Service responsibilities associated with its US Airways contract.

As it announced earlier this year, management also wants to negotiate cost concessions from its employee groups and ensure it maintains the appropriate staffing levels to operate profitably.

“We intend to use the Chapter 11 process to reset our financial and operational structure to position Pinnacle for viability over the long term,” said Pinnacle president and CEO Sean Menke. “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. Following a lengthy review process, and with the assistance of independent financial, industry and legal advisors, our Board of Directors determined that a court-supervised restructuring is the only feasible course of action to implement our turnaround plan.”

Pinnacle has suffered through a period in which U.S. major airline partners have aggressively sought to cut costs associated with their regional airline operations.

“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,” Pinnacle said in the filing.

In conjunction with the filing, Pinnacle has received a commitment for secured “super-priority” debtor-in-possession financing from Delta Air Lines in the amount of $74.3 million. Following court approval, Pinnacle would use $44.3 million to repay a secured promissory note held by Delta. It would use the remaining $30 million, combined with cash generated by Pinnacle’s ongoing operations, to maintain enough liquidity to meet its operational and restructuring needs.

Pinnacle has filed a series of customary motions with the court seeking to ensure the continuation of normal operations, including requesting approval to continue to pay employee wages, salaries and benefits without interruption and to pay suppliers for fuel and other goods and services provided after the filing date.

Pinnacle noted that it previously filed withdrawal notices with the U.S. Department of Transportation (DOT) for all of the EAS markets currently served by Colgan Air. Pinnacle has asked the DOT to establish an accelerated process to identify replacement carriers for the EAS markets it serves with its Saab 340 turboprops.

Plans call for the remaining Saab 340 flying Colgan conducts as United Express to end by August 1. The airline plans to shutter its Q400 operations from Newark and Houston by November 30.