Regional airline Pinnacle Airlines Corp. (PNCL: Quote) late Sunday said it has filed for bankruptcy protection for implementing a comprehensive turnaround plan aimed at addressing its operational and financial challenges.
The company and its subsidiaries Pinnacle Airlines, Inc. and Colgan Air, Inc. have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
The $1 billion airline holding company with 8,000 employees has received a commitment for $74.3 million of debtor-in-possession or DIP financing from Delta Air Lines (DAL: Quote). Following Court approval, $44.3 million will be used to repay a secured promissory note held by Delta. The remaining $30 million combined with cash generated by Pinnacle's ongoing operations will give the company sufficient liquidity to meet its operational and restructuring needs.
Pinnacle in last December had said that it has begun a comprehensive program to reduce short- and long-term costs and enhance liquidity and profitability. As part of its planned initiatives, the company was to seek modifications to its agreements with its mainline airline partners, equipment lessors, debt holders, real property lessors and vendors.
The company now stated that it plans several key initiatives during the restructuring process to help it return to profitability and remains viable over the long term as the regional airline industry continues to contract and transform.
Under the plan, the airline would restructure its key operating agreements with Delta Air Lines and would wind down its operations with United Airlines.
Sean Menke, President and CEO of Pinnacle, said, "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 ... our Board of Directors determined that a court-supervised restructuring is the only feasible course of action to implement our turnaround plan."
The company said its 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 it for profitable growth in the future.
Pinnacle added that it has filed a series of customary motions with the Court seeking to ensure the continuation of normal operations.
Pinnacle previously filed withdrawal notices with the U.S. Department of Transportation for all of the Essential Air Service or 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.
According to the company, 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 August 1. Similarly, Colgan's Q400 aircraft operations will be wound down by November 30.
In the restructuring, Davis Polk & Wardwell LLP and Akin Gump Strauss Hauer & Feld LLP are serving as the company's legal advisors and Barclays Capital and Seabury Group LLC are its financial advisors.
Pinnacle shares closed Friday's trading at $1.35, up $0.02 or 1.50 percent.
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by RTT Staff Writer
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