Pinnacle enters Chapter 11 to enable turnaround

Pinnacle Airlines Corporation and its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York, with the company intending to use the process to continue implementing a comprehensive turnaround plan aimed at addressing its operational and financial challenges.

During this process, the company says it 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 wants to achieve 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 include restructuring its 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 organisation to reduce costs, and ensuring that it has the appropriate fleet, staffing levels and network to operate profitably on an ongoing basis.

“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,” remarked Sean Menke, president and CEO of Pinnacle. “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 maximise 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."

Menke added, "We are committed to delivering safe, reliable travel throughout this process, and thank all of our employees for their continued focus on providing our mainline partners and their customers with on-time flights and superior inflight service. Our objective is to emerge from this process as a stronger, more focused company, with a revised business model, a substantially improved cost structure and operating agreements that will position us for profitable growth in the future."

In conjunction with the filing, Pinnacle has received a commitment for secured super-priority debtor-in-possession financing (DIP Financing) from Delta Air Lines 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 of 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 has filed a series of customary motions with the Court seeking to ensure the continuation of normal operations, including requesting Court approval to continue to pay employee wages, salaries and benefits without interruption and to pay suppliers for fuel and other goods and services provided after the filing date.

Pinnacle noted that it previously filed withdrawal notices with the US Department of Transportation (DOT) for all of the Essential Air Service (EAS) markets currently served by Colgan Air. 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 1 August 2012. Similarly, Colgan’s Q400 operations will be wound down by 30 November 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.

You may be interested in...


« Back to News