US regional carrier Pinnacle Airlines filed for Chapter 11 bankruptcy protection on Sunday, 1 April, after warning for months that it could be forced to take that route as it failed to stem losses and win agreements on pay cuts from employees.

The carrier has requested court approval to keep operating through the Chapter 11 process and plans to receive $74.3 million in debtor in possession (DIP) financing from its partner Delta Air Lines.

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

colgan air
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Saying that this is the "only feasible course of action", the airline's president and chief executive Sean Menke adds: "We intend to use the Chapter 11 process to reset our financial and operational structure in order to position Pinnacle for viability over the long term. Quite simply, 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 maximise our growth potential."

The airline had warned in recent months that filing for Chapter 11 could be inevitable, as it struggled to win agreements from its labour unions on pay cuts. Pinnacle announced a cost reduction programme in December 2011, following a third quarter pre-tax loss of $5 million.

As part of the restructuring process, the carrier will aim to rework its operating agreements with Delta, wind down its operations with United Airlines and complete the winding-down of its Essential Air Service operations with US Airways.

Pinnacle subsidiary Colgan Air, which operates Saab 340 aircraft for United Express, will wind down these operations over the next few months and will terminate them by 1 August. Colgan's Q400 operations will also be wound down by 30 November, says Pinnacle.

Pinnacle had earlier filed notices with the US Department of Transportation (DOT) to withdraw from the Essential Air Service markets served by Colgan. The carrier has requested the DOT to accelerate the process of identifying airlines to take over these markets, which are served by the Saab 340s.

As part of the Chapter 11 process, Pinnacle will also seek to cut staff costs and review its fleet, staffing levels and network, it adds.

Pinnacle's Chapter 11 filing was made in the US Bankruptcy Court for the Southern District of New York.

Source: Air Transport Intelligence news