* Company is parent of Pinnacle and Colgan Air
* Has commitment for $74.3 mln DIP financing from Delta
* Winding down flying for United Airlines
* Will continue flying as Delta Connection
By Kyle Peterson and Sakthi Prasad
April 2 Pinnacle Airlines Corp, parent
of Pinnacle Airlines and Colgan Air, filed for bankruptcy
protection, the latest victim of high fuel prices and dampened
Memphis, Tennessee-based Pinnacle operates as various
regional airlines - most notably Delta Connection - for
bigger-name partners including Delta Air Lines, United
Airlines and US Airways.
Pinnacle said in a filing late on Sunday that it would
rework its contracts with Delta and end flying for United and US
Airways. The company also wants to cut its labor and operating
The U.S. airline industry has been battered by soaring fuel
costs and economic weakness that has drained travel demand.
Regional carriers have felt the squeeze as their major partners
cut back on flights to smaller cities.
"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," Sean Menke, Pinnacle's president and
chief executive, said in a statement.
Pinnacle, which has 8,000 employees, flies as Delta
Connection, United Express and US Airways Express. It operates
more than 1,540 daily flights to 188 cities and towns in the
United States, Canada, Mexico and Belize.
Pinnacle said it has about $1.5 billion in assets and about
$1.5 billion in liabilities.
The company said it had received a commitment for $74.3
million of debtor-in-possession (DIP) financing from Delta that
would help it carry out normal operations.
"Delta will continue to support Pinnacle during its
restructuring and is working closely with them to ensure there's
no impact to our customers," Delta spokeswoman Betsy Talton
Ray Neidl, an airline analyst at Maxim Group, said that when
Pinnacle stops flying for United and US Airways, its main reason
for existence will be its deal with Delta.
Neidl said pressure on regional airline companies such as
Pinnacle and Skywest Inc has been growing in recent
years as high fuel costs cause major airlines to cut service to
the smaller cities they serve with their regional partners.
As major airlines focus on larger cities, they require
bigger airplanes, further marginalizing their regional partners,
which fly smaller planes, he said.
"With high fuel costs, it's much more uneconomical now to
use the regionals into smaller cities and use smaller jets.
That's why regional airlines are generally moving up in size in
the aircraft they operate," Neidl said.
"The regional sector is shrinking and moving toward larger
aircraft in general, and the number of participants is going to
be declining," he added.
In its bankruptcy filing, Pinnacle described its business
model as a "race to the bottom," with regional airlines forced
to bid lower and lower for the business of major carriers.
Pinnacle's contract with US Airways was already ending, and
a spokesman for that airline said the bankruptcy has no effect
A spokesman for United said it would gradually move the
United Express flying now done by Pinnacle's Colgan to other
Pinnacle said it would seek wage reductions and other
concessions from labor unions and hoped consensual agreements
could be reached. Unions representing pilots and flight
attendants at the company had no immediate comment.
In November, AMR Corp, the parent of American
Airlines, filed for bankruptcy and immediately flew into trouble
with unions over negotiation of labor contracts.
In March, AMR sought bankruptcy court approval to throw out
labor contracts, a move that puts new pressure on pilots, flight
attendants and other unionized workers to agree quickly to
Pinnacle listed estimated assets and liabilities above $1
billion, according to the Sunday filing.
Shares of Pinnacle were down 54 percent at 63 cents on the
Nasdaq Monday afternoon. Typically, shares of bankrupt companies
are wiped out at the end of the bankruptcy process.
The case is Pinnacle Airlines Corp, Case No. 12-11343, U.S.
Bankruptcy Court, Southern District of New York.