Pinnacle Airlines Corp. hopes to maintain peak performance in an up-and-down industry. The holding company's main subsidiary, regional carrier Pinnacle Airlines Inc., flies to about 115 cities in North America. Pinnacle and sister Mesaba Airlines mainly fly connector routes on behalf of Delta Air Lines, which bought Pinnacle's former parent Northwest Airlines. Pinnacle operates a fleet of about 200 Bombardier CRJ jets. Subsidiary Colgan Air serves about 40 cities in about 10 states under contracts with US Airways and United. Colgan Air operates a fleet of about 60 turboprop aircraft. Citing operational and financial challenges, Pinnacle filed for Chapter 11 bankruptcy protection in April 2012.
During the restructuring process, Pinnacle plans to keep its flights for Delta going (it's under contract until 2017), but will end Colgan's United flights by Aug. 2012 and its US Airways flights at a later date.
Pinnacle cited increased costs and decreased revenues as key reasons to initiate the reorganization. Listing $1.5 billion in assets and $1.4 billion in liabilities, the airline also owes almost $700 million to financier Export Development Canada for its fleet of Bombardier aircraft. Pinnacle took in $1 billion in 2010, a growth of 20% from 2009, but profits were down 70% to $12 million that year. The company posted net losses in the first three quarters of 2011.
Pinnacle also received a $74.3 million debtor-in-possession (DIP) loan from Delta, of which it will use $44.3 million to pay back Delta. The remaining $30 million will be used to keep the company's operations afloat.
Pinnacle derives most of its revenue from Delta capacity purchase agreements, where its routes for Delta are branded as Delta Connection flights. In mid-2010, after Delta bought Northwest Airlines, it sold one of Northwest's regional carriers, Mesaba Airlines, to Pinnacle. The $62 million transaction, which was underpinned by a loan from Delta, more than doubled Pinnacle's Bombardier CRJ-900 fleet and eliminated competition from Mesaba.
This transaction came on the heels of the steep economic downturn in 2009, as well as sky-high fuel prices in 2008. Pinnacle was somewhat insulated by the fact that it conducts the majority of its operations under capacity purchase agreements. Capacity purchase agreements (or fixed flight fee) allow regional carriers to conduct business differently from low-cost carriers, such as Southwest, JetBlue, Frontier, and AirTran, which offer fewer amenities on flights to the same markets as major airlines. Under a capacity agreement, regional airlines, such as Pinnacle, Colgan, and Mesaba, don't have an established route system, rather fly to smaller outlying cities as a service to a major airline, which pays the regional airline a fixed flight fee. There are still risks involved with this system; if one of its partners that experiences financial difficulties, the failing company may endeavor to amend the agreement terms.
CEO and president Philip Trenary resigned in early 2011 to pursue interests outside the company. Chairman Donald Breeding served as interim CEO until Sean Menke was tapped to fill the position in mid-2011. Menke previously served as executive VP and chief marketing officer for Republic Airways and as president and CEO of Frontier Airlines.