Mon Apr 2, 2012 11:20am EDT
* 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 (Reuters) ? Pinnacle Airlines Corp, parent
of Pinnacle Airlines and Colgan Air, filed for bankruptcy
protection late on Sunday, the latest victim of high fuel prices
and dampened travel demand.
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 it would rework contracts with Delta and end
flying for United and US Airways. The company also wants to cut
its labor and operating costs.
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,? said Sean Menke,
Pinnacle?s president and chief executive, 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.
The company said it had received a commitment for $74.3
million of debtor-in-possession (DIP) financing from Delta that
would help it to carry out normal operations.
?The only reason for their existence going forward appears
to be their deal with Delta,? said Ray Neidl, an airline analyst
at Maxim Group.
UNECONOMICAL
Neidl said the pressure on regional airline companies like
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? where regional airlines are
forced to bid lower and lower for the business of major
carriers.
The airline?s contract with US Airways was already ending,
and a spokesman for that airline said the bankruptcy has no
effect on operations. A spokesman for United said it would
gradually move the United Express flying now done by Pinnacle?s
Colgan to other carriers.
The company said it would seek wage reductions and other
concessions from labor unions and that it hopes that consensual
agreements can be reached with the unions.
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
concessions.
Pinnacle had listed estimated assets and liabilities above
$1 billion, according to a court filing.
Shares of Pinnacle were down 55 percent at 60.5 cents on the
Nasdaq on Monday morning. Typically, shares of bankrupt
companies are wiped out at the end of the bankruptcy process and
new shares are issued.
The case is Pinnacle Airlines Corp, Case No. 12-11343, U.S.
Bankruptcy Court, Southern District of New York.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.