Pinnacle Airlines, a US regional carrier, has filed for bankruptcy protection in an effort to deal with its escalating debt.
The regional airline, which flies under contract for United, Continental, Delta and US Airways, filed for Chapter 11 bankruptcy protection on 1 April 2012.
Pinnacle Airlines has applied for court approval to continue operating through the Chapter 11 process, and will receive $74.3m in debtor-in-possession (DIP) financing from its partner Delta Air Lines. Out of this amount, $30m will be used to continue operating the airline while it restructures, and the remainder will be directed towards repaying a secured promissory note held by Delta.
The airline said bankruptcy is the only feasible course of action. Sean Menke, Pinnacle Airlines’ president and chief executive 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 maximise our growth potential.
In recent months, the airline indicated that it might file for bankruptcy as it failed to control losses and cut employees’ salaries. In December 2011, the airline implemented a cost reduction program after it recorded a $5m pre-tax loss in the third quarter of 2011. However, this did not help the airline to control its increasing losses.
Pinnacle Airlines’ restructuring process will include various measures:
- Adjust its operating agreements with Delta Air Lines Inc, and continue Delta Connection flights
- Reduce the number of United Express flights that Pinnacle Airlines operates for United Continental Holdings Inc. This will occur during the next few months, and all flights will be terminated by 1 August 2012.
- Complete the process of winding down its service with US Airways.
As part of the Chapter 11 bankruptcy protection process, the airline will take several measures to reduce staff costs. The airline will also review its fleet and overall business structure.
Following Pinnacle’s filing for bankruptcy, industry experts estimate that 25% of the regional airline market is in bankruptcy protection. AMR Corporation, the parent company for regional airlines American Eagle Airlines and American Airlines, filed for Chapter 11 reorganization bankruptcy in November 2011.