Struggling US regional operator Pinnacle Airlines has reached a short-term deal with United-Continental on increased pay rates covering the operation of Q400s, and is working with its major partner to revise their long-term arrangement.
Memphis-based Pinnacle has been working to boost its liquidity and reduce costs, and has warned filing for Chapter 11 bankruptcy protection could be the best option to restructure its business.
Through an interim deal that began on 2 February and runs through 2 April United-Continental has agreed to pay Pinnacle increased rates on 16 Bombardier Q400 turboprops operated by Pinnacle subsidiary Colgan under a capacity purchase agreement.
The rate increases essentially serve as an interest free loan to Pinnacle to offset lost benefits to the Memphis-based carrier after it reached a deal last month with Export Development Canada to defer $16.4 million in loan payments on the turboprops.
Pinnacle outlined the short-term deal in a regulatory filing, explaining the loan would be automatically forgiven at the end of the interim agreement, or the end of an agreed to modification period.
The modification period would allow United-Continental to alter the number of Q400s covered under the contract if the partners fail to reach a long-term deal to revise the capacity purchase agreement.
Pinnacle recently said the payments it is receiving from United-Continental under the Q400 deal are not covering the expense of operating the aircraft, resulting in financial losses.
Pinnacle said United-Continental would also increase payments on Saab turboprops flown by Colgan in a pro-rate arrangment "under provisions substantially identical to the capacity purchase agreement".