Pinnacle to drop CRJ900 flying for Delta

Washington DC
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Pinnacle Airlines will cease its unprofitable Bombardier CRJ900 flying for Delta Air Lines as part of an agreement with the mainline carrier to provide it with debtor-in-possession (DIP) financing for Pinnacle's financial restructuring.

Pinnacle, which filed for Chapter 11 bankruptcy protection yesterday, says it has agreed with Delta on the early termination of the 2007 agreement covering the CRJ900s. It would, however, extend the profitable operation of its CRJ200s for Delta for an additional four and a half years.

Delta will be able to claim for damages as a result of the early termination of the CRJ900 agreement. The amount will be determined by the court, says Pinnacle.

Pinnacle will receive $74.3 million in DIP financing from Delta, subject to court approval. Of this, $44.3 million will be used to repay a secured promissory note held by Delta. The remaining $30 million be used to keep the airline operating.

The carrier currently has $45 million in available cash, says Pinnacle's CEO and president Sean Menke in court documents. Without the DIP loan from Delta, it would have less than $5 million available by June 2012, according to cashflow projections, he adds.

The airline has determined that it requires a cash balance of no less than $20 million at any one time to keep operating safely, says Menke.

Pinnacle's main customer is Delta, and it also does some flying for United Airlines and US Airways. But it said yesterday it will wind down all flying for United Express later this year, and will continue to wind down its flying for US Airways.