Pinnacle Airlines Flies Into Chapter Eleven

April 2, 2012

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Pinnacle Airlines filed for bankruptcy protection late on Sunday, as the US regional airline fell victim to high fuel prices and dampened travel demand that has negatively impacted some of the major players in the industry.

In the past, upon facing financial trouble, United Airlines and Delta Air Lines have taken the Chapter 11 route to cut costs and later found merger partners. AMR, the parent of American Airlines, also filed for bankruptcy late last year.

In a filing with a US bankruptcy court, Pinnacle said it seeks to resolve its operational and financial difficulties through the Chapter 11 process. It also seeks to implement a turnaround plan by cutting costs and restructuring certain agreements with major airlines.

Pinnacle is a regional airline headquartered in Memphis, Tennessee that provides transportation between hubs and smaller outlying cities for passengers ticketed by major carriers.

At present, Pinnacle's primary customer is Delta Air Lines, with additional flying currently provided to United Airlines and, to a much lesser extent, US Airways.

In light of high fuel costs and weak travel demand, Pinnacle said major carriers have aggressively cut costs and decreased capacity.

"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 unfavourable contract terms to win the business of major carriers," Pinnacle said in the filing.

The regional airline said it had received a commitment for USD$74.3 million of debtor-in-possession (DIP) financing from Delta Air Lines that would help it to carry out normal operations.

As part of the bankruptcy plan, Pinnacle said it would restructure its key operating agreements with Delta and would wind down its operations with United.

The company said it would also look to achieve workforce cost savings by seeking wage reductions and other concessions from unions. The airline said it hopes that consensual agreements can be reached with the unions.

However, there is a possibility that Pinnacle could face turbulence from unions on the question of wage cuts, which could potentially result in a protracted court battle.

In November, AMR, the parent of American Airlines, filed for bankruptcy and immediately flew into trouble with unions over negotiation of contracts.

In March, AMR sought bankruptcy court approval to throw out labour contracts, a move that puts new pressure on pilots, flight attendants and other unionised workers to agree to concessions.

Pinnacle had listed estimated assets and liabilities above USD$1 billion, according to a court filing.

(Reuters)