Pinnacle Airlines Corporation reports $2.4m loss for 2Q11

Pinnacle Airlines Corporation (PNCL) has reported financial results for the second quarter of 2011 including a net loss of $2.4 million.

The company’s new pilot contract with the Air Line Pilots Association (ALPA), effective February 2011, increased pilot compensation and benefits and caused an increase in pilot-related expenses of $5.7 million for the quarter, when compared with the same period in 2010.

Second quarter 2011 results exclude rate increases under PNCL’s contracts with Delta. These rate increases, according to the company – which expects to begin receiving them in mid-2012 – are structured to capture the increase in pilot wage rates associated with the new ALPA contract.

Scheduling changes by codeshare partners triggered a reallocation of pilots, which resulted in an increase of $3.8 million in certain crew-related expenses during the quarter. These crew-related expenses include premium pay, hiring, training, and crew overnight accommodations. PNCL also experienced a $2.5 million increase in operating performance penalties over the second quarter of 2010, which was primarily a result of this crew reallocation. The company has been working proactively with its partners to evaluate more optimal network schedules, has adjusted near-term block hour production and has been increasing its pilot staffing levels to address this issue.

The 35% year-over-year increase in the price per gallon of aircraft fuel negatively impacted Colgan’s pro-rate operations by $2.1 million during the second quarter of 2011.

PNCL recorded $0.5 million during 2Q11 for integration, severance, and contract implementation costs.

In June 2011, the company completed a sale–leaseback transaction on two Q400 aircraft, which had been acquired in March 2011. The sale proceeds were used to settle long-term debt and accrued interest of $35.8 million and resulted in net cash proceeds of $5.8 million.

During 2Q11, the company modified its spare parts financing agreement with CIT Leasing and, funded by CIT Bank, to increase its financing to $37 million and to extend the maturity date through December 2015. The company received net cash proceeds of $13.4 million as a result of the amendment.

PNCL ended the quarter with cash and cash equivalents of $89 million.

"I would like to thank the nearly 8,000 aviation professionals within Pinnacle Airlines Corporation whose efforts are greatly appreciated during a very difficult operating quarter," commented Sean Menke, PNCL’s president and CEO. "Since joining over a month ago, I have learned that we have a significant amount of work to do to accomplish the objectives related to the numerous projects currently on the table. Over the next several months, our focus will be on taking further steps to improve our operational reliability, implementing our recently agreed integrated pilot seniority list, successfully completing our corporate headquarters relocation, and most importantly, continuing on the path to integrate all facets of our three airlines into two separate operating certificates. Successful completion of these projects, among others, will lead to operational efficiencies and cost synergies."

The company’s operating agreements with Delta Air Lines provide for an increase to revenue in 2012 based on changes pilot labour costs after integrating the pilot groups and regional jet operations of the company’s operating subsidiaries. This increase will come in the form of a one-time payment to PNCL in mid-2012, tied to pilot labour and training costs during the integration process (as measured over the previous 12 months), and a prospective rate increase based on the company’s pilot labour costs after integration is complete.

Management currently estimates that the one-time payment to be received in 2012 could be as much as $18-$20 million, and the prospective rate increase to be received post-integration could be as much as $14-$17 million annually. While the company is not recording this expected revenue increase in 2011 under generally accepted accounting principles, management expects a substantial increase in both revenue and operating income in 2012.

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