Daily News: April 2, 2012

Pinnacle Airlines Files for Chapter 11; Receives $74.3MM DIP Loan


Pinnacle Airlines Corp. announced that the company and its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. Pinnacle intends to use the Chapter 11 process to continue implementing a comprehensive turnaround plan aimed at addressing its operational and financial challenges in a rapidly evolving regional airline industry. During this process, the company will remain focused on providing passengers with safe, reliable and timely service in collaboration with its network partners, Delta Connection, United Express and US Airways Express.

Pinnacle expects to accomplish several key initiatives during the restructuring process to help ensure that it returns to profitability and remains viable over the long term as the regional airline industry continues to contract and transform. These initiatives include restructuring its key operating agreements with Delta Air Lines, winding down its operations with United Airlines, completing the wind-down of its Essential Air Service (EAS) flying with US Airways, achieving cost savings from its workforce, identifying additional opportunities across the organization to reduce costs, and ensuring that it has the appropriate fleet, staffing levels and network to operate profitably on an ongoing basis.

Sean Menke, president and CEO of Pinnacle, said, “We intend to use the Chapter 11 process to reset our financial and operational structure in order to position Pinnacle for viability over the long term. 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.”

In conjunction with the filing, Pinnacle has received a commitment for secured super-priority debtor-in-possession (DIP) financing from Delta Air Lines, Inc. in the amount of $74.3 million. Following court approval, $44.3 million will be used by Pinnacle to repay a secured promissory note held by Delta. The remaining $30 million in DIP financing, combined with cash generated by Pinnacle’s ongoing operations, will be available to help ensure that Pinnacle has sufficient liquidity to meet its operational and restructuring needs.

Pinnacle noted that it previously filed withdrawal notices with the U.S. Department of Transportation (DOT) for all of the Essential Air Service (EAS) markets currently served by Colgan Air, a Pinnacle subsidiary. Pinnacle has asked the DOT to establish an accelerated process to identify replacement carriers for the EAS markets it serves, which are currently served by Saab 340 aircraft. The remaining Saab 340 fleet that Colgan operates for United Express will be wound down over the next several months, with these operations projected to end by Aug. 1, 2012. Similarly, Colgan’s Q400 aircraft operations will be wound down by Nov. 30, 2012.

Davis Polk & Wardwell LLP and Akin Gump Strauss Hauer & Feld LLP are serving as the company’s legal advisors in the restructuring. Barclays Capital and Seabury Group LLC are serving as financial advisors.

Pinnacle Airlines Corp. is the parent company of Pinnacle Airlines, Inc. and Colgan Air, Inc. Flying as Delta Connection, United Express and US Airways Express, Pinnacle Airlines Corp. operating subsidiaries operate 199 regional jets and 62 turboprops on more than 1,540 daily flights to 188 cities and towns in the United States, Canada, Mexico and Belize.