Another day, another bankruptcy. On Sunday night, Pinnacle Airlines Corp filed for Chapter 11 bankruptcy protection to the surprise of nobody. I should say, to the surprise of nobody who has ever heard of the airline.
You probably haven’t heard of Pinnacle because it and its subsidiary airlines fly under the Delta Connection, United Express, and US Airways Express names. The group carried nearly 20 million passengers last year, so this should be a big deal. But it’s not if you’re a passenger. Let me explain why that’s the case.
Pinnacle Airlines itself was originally called Express Airlines I. It proudly carried the red tail as Northwest Airlink for many years (and Republic Express before that). A name change came a few years ago and it tried to expand. After getting Delta to give it some flying, Delta and Northwest merged bringing the airline back to square one with a single partner.
In recent years, Pinnacle expanded through merging. It acquired Mesaba from Northwest and it acquired Colgan Air. You may know the Colgan name. That’s because Colgan operated the Q400 that crashed in Buffalo a couple years ago. It’s no surprise that Pinnacle planned to phase out the Colgan name in favor of Mesaba, but it never quite got there. So now, bankruptcy is going to accelerate some big changes.
One of Pinnacle’s big problems is that it agreed to a lot of unprofitable contracts to fly express operations for major carriers in its effort to break into new flying opportunities. That wasn’t the smartest plan, but now those are all going to end.
Colgan built up a small Saab 340 turboprop operation for US Airways at LaGuardia, but with US Airways shrinking that operation thanks to the Delta slot swap, there was no need for Colgan anymore. The remaining few flights will be done soon. That has very little impact on travelers since it wasn’t going to last much longer anyway.
Perhaps more surprising is Colgan’s decision to end operations as United Express. Some of that was on Saab 340s but the real shock was the decision to stop flying its thirty Q400s as well. The Q400s had found a nice niche in the northeast as Continental Connection, but apparently the contract simply wasn’t producing for Colgan. It’s walking away completely with all flights under the United name stopped by the end of November.
Now that does seem like something that should concern you as a traveler, but it really shouldn’t. It’s not like these routes are going to disappear just because Colgan walks away. I asked United for a statement and was told this:
We are working with Colgan to transition their flying for United Express to other carriers, and are working hard to accommodate our customers. We have contingency plans in place and will contact any customer whose reservation may change as a result of the transition.
In other words, while there could be some disruption, United will just find someone else to take over Colgan’s flying. Maybe United will turn to Horizon Air, a very experienced Q400 operator. Or maybe Republic will pick up the flying since it has been flying those airplanes for Frontier. Or maybe United will just transition to jets. The point is, United can fill the hole and you won’t ever know the difference. That’s one reason airlines like outsourcing. They can always replace an operator if things don’t work out.
Pinnacle will also be reducing its Delta flying a little, but not much. A handful of CRJ-900s will disappear since they fly under yet another unprofitable contract. But Delta is now the sole reason for Pinnacle to exist.
In fact, Delta is forgiving $44.3 million in debt as well as pumping in another $30 million to keep the airline flying while it restructures. If Delta didn’t pump money in, then Pinnacle might not have been able to arrange financing at all and could have been gone by June.
In return for this infusion, Pinnacle agreed to modify its “most valuable contract” operation 50 seat CRJs with Delta to be more favorable. As part of this, it got an extension to allow it to fly all 140 of those airplanes until the next decade.
So what does all this mean? It means flights will continue to fly. United will have to find someone else to do the flying while Delta will just get much of its flying for less . . . if you don’t count the $70+ million it’s investing in this deal.
If anything, this could be a good thing for passengers. Why do I say that? Well, Delta is getting a better deal on the CRJs because of this. That means some marginal small city routes might now look better with lower costs applied.
But beyond that potential benefit, there really isn’t much here that concerns the traveler. It’s just yet another bankruptcy.
[Original photo via Flickr user DearEdward/CC 2.0]
44 comments on “Pinnacle Files for Bankruptcy Protection; You Shouldn’t Care”
Delta has also talked about phasing the CRJs out ASAP. What is the implication of extending its contract to fly “all 140 of those airplanes until the next decade.” Does that mean we’re stuck with these for the next 10 years??
Maybe it means we’re just stuck with Pinnacle’s planes. If you think about it, that’s only a small part of Delta’s CRJ fleet. I’m guessing the ex-NWA birds are much newer than most of those Delta CRJ’s flying around, since NWA was so late to the CRJ game (remember the Avro RJ-85 fleet?)
As Cranky points out this is great news for smaller markets. Many of those markets just can’t support anything larger than a 50-seat. If they were all removed from the Delta fleet suddenly the route map would lose all the small cities that, while perhaps not glamorous, serve to link flyers with a large swath of the US.
I think those same markets could survive with turboprops. If Delta were to add Q400’s to its fleet, or even Q300’s (if they could get Bombardier to build them) would cover these CRJ markets at a much lower cost. With fuel prices soaring, I think this is the way carriers will go, if they truly care about squeezing money out of the smaller markets. The CRJ is just not a long term solution, and I will be surprised if they are flying in bulk by 2020
The only model of the Dash 8 being built is the Q400, so no more new Q300s. But the Q400 is still probably more economical to operate half-empty than the last few CRJ200s.
The other alternative would be to simply drop frequencies on the few remaining routes that don’t have enough traffic for the Q400s or larger CRJs.
You also forget stage length. The economy versus time is on the side of the Q400 until a certain stage length that I can’t recall from an AS presentation. After that point the CRJ’s greater speed makes it the better choice.
My question after reading about this bankruptcy is who owns the Q400’s? UA? Or Colgan Air (Pinnacle)? If Colgan Air does own them, what is it going to do with them? If United does, I think they could have someone flying them in no time
Ben, I assume the Q400s are financed, so the finance company has “ownership” of them, once everything shakes out. Of course, the bankruptcy court may allow Pinnacle to reaffirm the debt with the finance company, so things may stay as they were before.
But, I think at some point, these planes will be sold off by someone in a firesale, especially if this turns into a Chapter 7 liquidation.
I’d be amazed if QX picked up the Q400 flying… They’ve been pretty focused about staying on target as only a Q400 operator for AS..
I’d also quibble with the statement that Delta is forgiving $44.3m in debt. From the press release “…debtor-in-possession financing (“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.” Since Delta will still be owed this money and DIP financing generally is first in line, Delta has managed to move the priority of their $44.3m in debt a bit higher in the bankruptcy, albeit for the price of loaning out another $30m.
I also wouldn’t be surprised if SkyWest or Republic use this as a way to acquire Pinnacle and continue to consolidate in the regional operator space.
Actually, I think it’s one of the few things about this Pinnacle move that makes sense. QX is the expert on Q400 flying in the US, and they have tried to branch out beyond Alaska before. Remember when they flew regional jets for Frontier? I could see them trying again, now that they are solely focused on the Q400. If they are looking to grow, here is one of the few chances to do that. AS could never find this much new flying for them. And I think as fuel prices rise, the demand for turboprops will grow dramatically. That would give QX and Alaska Air Group an opportunity to cash in.
Yup, I actually flew Frontier JetExpress operated by Horizon. I can see Horizon as maybe being interested, but they will want to make sure its worth their while. I can also see UA not wanting to fund the profits of a competitor. DL or AA would probably be happy to have QX operate those for em.
Fair enough, Nicholas. I was trying to come up with an easy way to explain what DL was doing financially, but I didn’t do very well with it.
Regarding Horizon, I think the issue might be that Horizon isn’t bottom of the barrel when it comes to costs. It’s a great operator, but nobody wants to pay for that these days. I don’t think United cares much about funding a competitor. After all, it still pays Republic which owns Frontier.
I can’t imagine SkyWest or Republic have the bandwidth to be able to take over another airline right now. SkyWest is still having indigestion with ASA and ExpressJet. Republic is distracted by Frontier. Might be tough.
I would
I like the photo with the “Operated by Some airline or another” caption.
People have no idea who is flying a ‘express/connection’ carrier, only that some airplane is taking them where they need to do. Even people walking up to a Skywest named/painted aircraft couldn’t tell you who they were flying since most people to pay attention. So as long as an airplane is there the public will get on no mater whom the major hired to operate the service.
“””””We have contingency plans in place ….””””” And what does that mean exactly? Will their contingency plans mean putting people on buses if they can’t find some outfit to replace Colgan?
I think “we have contingency plans in place” means that United won’t let these flights just disappear but the plan isn’t exactly formed yet. They’ll figure something out.
??”?”We have contingency plans in place ?.?”?”?
In Unitedspeak it means: We are a perfect airline, we have never made a mistake, as soon as we can assign blame to someone, we will do so. In the meantime, wait quietly.
The most notable changes at United are down here in Houston where Colgan does a good number of Saab 340 and Q400 flying as well. UA is bringing back the ERJ135s (SRJs) to cover the 340s. Even though its a thirsty alternative they’ll be all 135 by Aug 1st. I believe that July 31st is the final day of Colgan ops at IAH. The Q400 flying will probably be folded into the mix with the increased PMUA Airbus flying out of IAH.
Another reminder that the regional airline business is pretty unstable, and no way to make a career. (I spent a couple of years working on the ramp for a regional airline that no longer exists.)
Problem is, those pilots working on the Colgan contracts will get picked up by whatever carrier gets that flying… but at the bottom of the pay scale, which means $20k a year. That works for your first year when you’re “building experience.” But, when you’ve got 5 years in, that argument no longer flies.
Pinnacle is bankrupt largely because they signed unprofitable contracts with their partners, yet to escape this situation they will reduce their rates for their most profitable contract? This strikes me as short-term desperation.
Can any other airline operate the Q400s for the same or lesser rate as Colgan? I would have expected them to be about the lowest cost operator for that aircraft, certainly compared to Horizon. Yet United must be able to replace them at the same or lesser cost, otherwise they would just renegotiate a slightly richer contract with Colgan, would they not?
Seems to me that Pinnacle has a lot of unprofitable contracts and a couple that work. The problem is it dug itself into such a big hole that it was either going to go out of business or it had to do a deal with Delta to get funding. Only way to get that done was to reduce the contracts that were actually profitable. Not a great thing.
On the Q400s, I would be surprised if anyone else could do it for what Colgan did it for.
As I see it (and I could be wrong), this is simply one more nail in the coffin of the regional airline industry as we currently know it. Mesa, Air Wisconsin, Trans States, Comair, Eagle, Piedmont, PSA, et. al, may all be toast in the not-too-distant future through bankruptcy, consolidation or simply closing down businesses. Many may become nothing more than ground handling contractors.
With the upcoming alleged (or real) pilot shortage, this may not be such a bad thing.
The closures, consolidations, bankruptcies, etc. among the regional carriers are merely part of “rationalizing” the entire airline industry. At this point, I see only two large independent regional airlines surviving, Skywest and Republic; yet each is having its troubles. And I also wonder about the mix of regional aircraft going forward, especially with the price of fuel trending the way it appears to.
At this point, there are too many regionals chasing too few majors, to paraphrase an old metaphor. Many contracts are expiring in the next few years, especially for 50 seat flying, so it should be interesting to see how all of this shakes out. The impact on small town and rural America could be huge.
Well, the future of the regional airline industry is simply based on demand by mainline carriers. Demand is down, but it’s not going to disappear and die out for a good while. Independant regional airlines might disappear, but they will just be replaced by carriers owned by a parent mainline company (like Alaska/Horizon)
Especially with Q400s, the costs of regional airlines are still lower for markets that can’t support several mainline frequencies. If anything, ticket prices will rise and only marginal markets will disappear altogether.
But there certainly won’t be CRJs everywhere like in the late 90s, and consolidation has already happened.
I don’t disagree with you overall. But I think we’ve only begun the consolidation of the regional industry. I also feel there will be fewer small aircraft going forward no matter what the mix is.
There will always be some demand for smaller scale aircraft, both to open new markets and to serve smaller remote communities. The questions will be over size, type and overall costs (not only fuel, but costs of ownership). Given the pressures on the EAS system and the move toward larger aircraft, I see a major reduction in the regional space. Just my opinion.
Maybe a better way to put the level of reduction is “significant” not “major.” The marketplace both economic and political will determine how significant the reductions will be. Much of this will be played out in the 2015 – 2020 time frame when much 50 seat capacity comes off contract (over 600 aircraft per a Pinnacle presentation quoted on http://www.centerforaviation.com today).
Oops! Wrong spelling. Should be http://www.centreforaviation.com.
This comment by the writer leaves me completely cold:
“If anything, this could be a good thing for passengers. Why do I say that? Well, Delta is getting a better deal on the CRJs because of this.”
Obviously this comes from one who travels very little on routes that are heavy with the “Canadian Torture Tubes.” There now is no such thing as a CRJ trip which is good for passengers since the airlines have discontinued the really short trips (such as CVG-SDF) which were the only ones that were at all bearable.
As a DL flyer, all you can do is book away from the CRJs and from time to time give your money to someone else (even horrors, WN) to get where you are going.
Haha. I totally agree!
As a patriotic Canadian, I am only ashamed of two things – CRJs and Justin Bieber.
I remember way back when I was in college Air Wisconsin used to fly into our regional, then it was Mesa followed by Pinnacle when DL needed more seats. After reading this I’m wondering if it was one of those unprofitable contracts 9E signed because soon after DL announced it was dropping the EAS subsidy.
In any case, I agree with DesertGhost it looks like only OO and Republic will be the only ones standing. As much as many of the commentators here like to talk bad about the regionals they help plug holes in an airlines’ route map and, as CF and Jason H mentioned, link areas that cannot support larger aircraft on a continual basis.
For example, if I need to get to say Great Falls, Montana I would either have to catch a twice or three times weekly Allegiant flights to Vegas and then make my way from there or catch a twice or three times daily regional flight on UA, DL or AS. I understand GTF is an extreme example of regionals plugging holes on a map because it is far from a major airport, but it’s an example of what goes on across the country. The majors are just trying to meet the demand of its customers and if that means regularly scheduled daily flights to smaller airports then that’s where regionals will thrive if they’re smart about it, which it sounds like Pinnacle was not.
Back in the 1980’s I recall flying on mainline metal 727’s and DC-9’s to markets that today are considered “plugging the holes” markets for regional fliers. I also recall that often times those aircraft were half empty. I get why regionals were put in there and how a market for CRJ’s came about, but in the new reality of high fuel prices, higher ticket prices and lower demand I can see an eventual demise of regional carriers and mainlines picking up the “holes” again and flying a very limited, allegiant like, schedule.
I think we need to have a serious debate about some of the more isolated cities and ask ourselves if daily commerical air service is really necessary. Does GTA really have daily service from DL, UA & AS?!! For a city of about 50k? I’ve been, and I have a hard time believing there is enough business or pleasure demand for that. At most maybe in the summer tourist season, but still doubt it. And for a local living in Great Falls, it’s about a 300 mile drive to YYC where you can connect all over the world. Many people travel farther over land to get to much smaller airports.
I’m all for efficiency, but really A? Having lived in some smaller cities (Walla Walla, WA for example – 2x daily service on Horizon) and in some much larger cities (Seattle and Denver) I can’t see how pulling service to a small city is any help to anyone. Let’s take ALW for an example. They could take the drive to Pasco or up to Spokane, but that is a long drive that adds in a large measure of complexity. When you also live in areas that get bad weather you would much rather fly over (or through) the weather than drive through it.
Small cities shouldn’t be relegated to the dustbin of aviation service because they are small. Rather we should be glad that the major carriers are continuing to service them. The WNs and F9s of the world certainly aren’t going to do it. Many of these small communities have wonderful places to visit and are much more relaxing in many ways than the beach resorts that so many people flock to. In that area I believe that the small, isolated cities do deserve daily commercial air service, especially when they can support it without becoming an EAS city.
It’s not a matter of dropping cities because they don’t like the cities, but more if the route wouldn’t be profitable because the demand isn’t there.
If there really is demand for a daily (or several daily) flights and people are willing to pay unsubsidized prices for tickets, airlines wouldn’t be dropping flights to those cities.
“And for a local living in Great Falls, it?s about a 300 mile drive to YYC where you can connect all over the world. Many people travel farther over land to get to much smaller airports.”
You’re not seriously suggesting that it’s reasonable for someone to have to drive 300 miles/6 hours to access commercial air service (in another country, no less!)
Not to mention out west those 300 miles often include mountain passes and treacherous conditions.
I have no problem with codeshares. It’s quite easy for any consumer to see who’s operating the flight when purchasing a ticket. When I fly ORD-GRR I can see exactly which flight is a United mainline and which is the express. I make my choice by time and preference.
Chicago Christ how funny you mention Great Falls, as I was just this week looking at an old NW timeable that had DC10’s between GTF and Spokane and Billings. Billings with DC10’s to ORD/MSP/GTF. Spokane had 2 daily DC10’s to MSP/1xBIL and 4 out of 7 nonstops to SEA were DC10’s. This was Summer 1980 and you would not see that today. A lot of cities that had D10/L10 service then are lucky today to have regional service. How times have changed.
LOL at the notion of regular DC10 service to Great Falls, Spokane and Billings. Would love to know those load factors!
Color me, nothing more than a consumer of air transportation, extremely “concerned.”
“Welcome onboard. Today’s flight is operated by someone other than the airline marketing this flight. The operating airline is a regional airline, or a subsidary thereof, which in either case, as of this moment, may or may not be in bankruptcy. Trust us. Everything will be fine!”
I have and always will be, I guess, against the DOT/FAA allowing an airline to be “certificated” and fit, willing, and able, where it is providing the air tranportation other than with its own planes and crew, as it told FAA when it applied for certificate. To provide me service with something other than its own planes and crew is something like a forwarding operation, or nothing more than an interline service.
When ATC guides an “operated by” Skywest flight market by UA, it refers to it as a SkyWest flight, not a UA flight. Why should UA, for example, disclosures nothwithstanding, want me to think this is a UA flight, when it isn’t? I really do care. I have major concerns of how UA, here, is performing, let alone how it’s “operated by” is.
Someday, I believe the entire airline industry will be restructured to much as it was before deregulation. The majors, operating their own fleet between their hubs or wherever they want to fly point-to-point service, and the minors, like the local service airlines of old, as the feeders. (Allegiant and its types can do their thing too.) But, the relationship of the majors and the minors will be one of interline, maybe a preferred interline, but interline nonetheless. One interline to this hub. Another, or the same to that hub. A joint fare that the traveler will know simply as the fare, with logically, differently fares dependent on which combination is used.
While some of your complaint is valid I question just what you want an airline to do when they are interlining. Should Delta be forbidden from selling a seat on an Air France plane that carries a Delta codeshare? Should US Airways be forbidden from selling a seat on a Lufthansa plane carrying a United codeshare?
From a safety perspective I’d rather my airline be in bankruptcy than not. The FAA automatically steps up oversight on carriers in bankruptcy.
E.g. Pinnacle flies JFK-DFW on a CRJ for DL. That is utterly ridiculous given the size of the markets and cities, and being on a CRJ for >3 hours.
Good luck to Pinnacle as they sort this out. Lets hope that soon we can get some super efficient sub-30 seat turboprops to serve the small towns. I think Cape Air is working on one with some Italian company.
Funny to look at the life cycle of regional carriers. It seems not that long ago that CRJs and ERJs were the greatest thing since sliced bread because they were replacing the Dash 8’s, Brasilia 120s and ATR-72’s to the TLHs and GNVs of the world.
Then, somehow and without asking any of us, RJs routinely started replacing 727s and 737s on mainline flights of 2 and 3 hours. Uh, what? Now the last few years have seen the aviation world desperately trying to dump these 50 seat RJs and get back to Q400s (aka quieter Dash 8s). My head hurts!
If I had the money, I’d buy several Pinnacle Q400s for a new airline. No alliances, no code-shares, just myself and some good qualified (paid) people flying (paying) passengers around. In the news today, a purported expert said: “The way the mainline carriers pay the regional operators doesn’t work”. Well, duh, fuel prices are through the roof for good! CRJ, ERJ, IRJ, or any RJ is toast. A regional can make it in these times only if it eschews jets for legs less than 800nm. Anyone got a spare hundred million dollars to start an airline out of Delaware with me? Anyone?
I am with you Howard…I think the market is begging for the Air New England/Britt/MVA/Golden Gates of yester-year. Focus on a region, link the right-sized supply with demand and interline with everyone. Once the dust clears and there are two mega-regionals left standing, someone is going to have to backfill the small communities that are not viable on RJs.
I’m just old enough to have flown Air New England, and that’s near the idea I have. They were a good airline out of Boston, LaGuardia, and BWI to the whole Northeast. I know they had DHC6. This new operation would be sort of a Cape Air on steroids, bigger than commuter but not a huge regional, although flying the same planes. A DHC8 (type Q400) on an ILG-ATL round 1x/day could take 3% of PHL-ATL mainline traffic, pay 20% less for fuel to the local FBO, and get 30% better mileage from that fuel. Maybe Eric or Cranky could be my partners.