Pinnacle Falls 12% as CEO Sees Bankruptcy Without Cost Cuts

Pinnacle Airlines Corp. (PNCL), a provider of regional flights for larger carriers, tumbled the most in a month after saying it may be forced to file for bankruptcy protection unless it pares costs.

Pinnacle, based in Memphis, Tennessee, declined 12 percent to 84 cents at the close in New York, the steepest drop since Dec. 20. It fell 90 percent in 2011.

“On the current path, our financial position will continue to worsen at an alarming rate; we need to act immediately,” Chief Executive Officer Sean Menke said today in a letter to employees. “What happens next is not yet clear.” Menke said the company needs to reach cost-cutting agreements with labor, vendors and other partners.

Menke’s warning of a possible Chapter 11 filing followed Pinnacle’s hiring of advisers, including Seabury Group LLC last year to review its business plan and rework debts. The CEO said in December that 2012 would be “extremely challenging” without new labor and debt accords. The carrier had $81.8 million in cash as of Sept. 30.

A new pilot contract and efforts to integrate seniority lists resulted in higher costs and more complexity than anticipated, Menke said in the letter. Other problems include contractual rates with United Continental Holdings Inc. (UAL) for Q400 planes that “are not covering the expenses” to operate that fleet, resulting in losses, and higher maintenance costs on the Delta CRJ-900 fleet that will “worsen over time,” he said.

‘High Probability’

Pinnacle, operator of flights for United Continental and Delta Air Lines Inc. (DAL), has a “high probability” of filing for bankruptcy, said Ray Neidl, a Maxim Group LLC analyst, last month. “We do not see any indicator of a significant turnaround over the next 12 months” and Pinnacle may run out of cash first, the New York-based analyst, wrote in a note.

Pinnacle’s Colgan Air unit was involved in the parent carrier’s deadliest accident ever: a 2009 crash in Buffalo, New York, that killed 50 people when a turboprop plunged to the ground. That disaster focused attention on Colgan’s pilot training. National Transportation Safety Board investigators concluded that while the captain’s maneuvers were the main cause, the airline’s “inadequate” procedures and management contributed.

Nine months after that accident, Colgan assigned 84 new flight attendants to 172 flights after an inspector notified the company that they hadn’t finished required training, the U.S. Federal Aviation Administration said in September. The agency proposed a $1.89 million fine against Colgan.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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