Delta Sells Regional Carriers to Focus on Main Routes

Delta Air Lines Inc. agreed to sell its Mesaba and Compass regional carriers to Pinnacle Airlines Corp. and Trans States Holdings Inc. to reduce operating costs and focus on its main jet routes.

Delta, the world’s biggest carrier, will sell Mesaba for $62 million and Compass for $20.5 million. Both airlines will continue to ferry passengers from smaller cities to Delta hubs under the Delta Connection name, Atlanta-based Delta said today in a statement.

The sales come three weeks after American Airlines parent AMR Corp. said it was studying the divestiture of the American Eagle regional unit. Such moves increase competition among regional carriers, giving the larger airlines lower-cost options to bring commuters to their hubs.

“While the dollar amounts are not material to Delta, we think over the long term, this will allow Delta to continue to get cost reductions out of its regional airline operations,” Jim Corridore, a Standard & Poor’s equity analyst in New York, said in a note today. “Delta will eventually pressure these and its other regional operators for better contract terms with lower rates.”

Regional Partners

Major U.S. carriers began shedding regional partners as long ago as 2002, when Continental Airlines Inc. spun off ExpressJet Holdings Inc. and later sold its remaining stake. Pinnacle separated from Northwest Airlines Corp. with an initial public sale of shares in 2003. Northwest was acquired by Delta in 2008.

Delta wants “to focus on their mainline business and views this as a distraction,” Jeff Straebler, a fixed-income strategist at RBS Securities Inc., said in an interview. “They are looking to reduce their regional flying overall.”

Mesaba and Compass will retain their headquarters in Minneapolis-St. Paul and will function as wholly owned units of Pinnacle and Trans States, Delta said. No changes in flight schedules or cities served are expected, the carrier said.

Pinnacle, based in Memphis, Tennessee, has a fleet of 202 regional jets and 80 turboprop aircraft, and its Colgan Air subsidiary flies for Continental, UAL Corp.’s United Airlines and US Airways Group Inc.

Flight Agreements

Under the purchase agreement, Mesaba will operate 76-seat Bombardier CRJ-900s for Delta for 12 years and will continue to sublease its fleet of 57 CRJ-900s from Delta. Pinnacle also agreed to fly Saab 340B aircraft for Delta until they are removed from use in late 2011. Pinnacle’s current Delta Connection agreement runs through 2017.

Trans States, based in Bridgeton, Missouri, operates flights for airlines including United and US Airways. As part of the purchase, Compass signed a 10-year contract to continue flying for Delta.

Delta fell 3 cents to $11.72 at 4 p.m. in New York Stock Exchange composite trading. The shares have climbed 3 percent this year.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

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