Regionals now need to quash investment community concerns about fixed-fee contracts

Chautauqua Airlines and Pinnacle Airlines have put planned initial public offerings (IPOs) on hold until at least the second quarter of 2003, unless investors' appetites for US airline stocks improve.

The two regionals, along with several of their counterparts, have managed to stay profitable and maintain rapid expansion despite the financial woes of other major carriers. But investors do not believe they can remain insulated from the upheaval of the US airline industry.

Chautauqua chief executive Bryan Bedford says: "We've actually accelerated our growth, not decelerated…Unfortunately, the investment community has not realised this." Bedford says the biggest barrier is overcoming investment community concerns that fixed-fee contracts with major carriers are no longer relevant or sustainable. Both regional carriers have such contracts, Chautauqua with US Airways and Pinnacle, exclusively for the next four years, with Northwest.

US investment firm Wexford and Northwest Airlines tried to spin off Chautauqua and Pinnacle earlier this year on the heels of Continental's ExpressJet IPO. While ExpressJet stock sunk and is now 40% down on initial levels, Wexford and Northwest could not achieve their minimum asking price.

"I don't think you can get an IPO done in this market," Bedford says. "Maybe the second quarter of 2003 will be the first opportunity."

Pinnacle chief executive Phil Trenary agrees, saying Pinnacle's IPO plans are "on hold".

Meanwhile, Chautauqua became an all-jet operator on 1 October and will become the first operator to feed four majors on 1 November when it begins flying two Embraer ERJ-145s for Delta Connection. Chautauqua has 17 Saab 340s waiting to be remarketed, but Bedford claims they are not dragging down the carrier's IPO prospects. He also describes pilot talks as a non-issue.

Source: Flight International