Pinnacle Airlines filed for Chapter 11 bankruptcy protection April 1 and has 90 days to win court confirmation of a plan of reorganization that is âreasonably acceptableâ to .
In fact, Memphis, Tenn.-based Pinnacle has to answer a lot to Delta, which is providing the U.S. regional carrier with $74.3 million in debtor-in-possession financing. Delta also agreed to convert the DIP into a five-year exit term loan when the airline is ready to emerge from Chapter 11, âproviding a path for [Pinnacle] to exit from Chapter 11,â CEO Sean Menke said in a statement submitted to the court.
Under the terms of the DIP, Pinnacle will have to provide Delta with a weekly 13-week projection of its use of the funding. It also must provide Delta with a business plan and a projected one-year operating budget.
Delta, at its sole discretion, will decide whether what Pinnacle provides is âsatisfactory,â the DIP agreement states. Menke says his airline already reached agreement with Delta on the 13-week budget and one-year plan.
Within 30 days of the bankruptcy filing, Pinnacle must deliver to Delta a comprehensive business plan and a projected budget for six years, including projected capital expenditures.
Also within 30 days, the DIP agreement states, Pinnacle must deliver cost-cutting proposals to its union-represented work groups. If the airline and unions do not reach an agreement on a new contract within 45 days of that submission, âin form and substance reasonably acceptable to the lenders [Delta],â Pinnacle must file a Section 1113 motion with the court to reject existing union contracts on which there is no voluntary agreement on cost-cutting revisions.
If Section 1113 motions are filed, the bankruptcy court has to enter a final order or orders granting the motions or approving settlements reached between Pinnacle and each unionââin each case, reasonably acceptable to the lenders.â
Pinnacle says obtaining labor concessions is a âcritical componentâ of its restructuring plan.
Delta is the biggest customer for Pinnacle, which operates more than 1,300 daily departures to cities in the U.S., Canada and Mexico for Delta,and . Soon, Delta will be its only customer: Pinnacle plans to stop its money-losing flying for United Airlines and US Airways.
Pinnacle already ceased most of itsflying for US Airways, and expects to exit the rest of the Saab marketsâall operated under the federal governments Essential Air Service programâby the end of June. Under its restructuring, it plans to end all of its Saab and flying for United before the year-end.
Pinnacle operates CRJ-200 and CRJ-900 aircraft for Delta, having ended its Saab 340 flying for the carrier in December. But it says it is losing money on the CRJ-900 flying.
Pinnacleâs discussions with Delta resulted in a four-and-a-half year extension on their agreement for CRJ-000 flying. Menke notes that this accounts for 140 of the aircraft that Pinnacle operates.
Under the extension, the contract will last at least through 2017 and, assuming no breaches by Pinnacle, could last through June 2022. Delta, however, can remove CRJ-200 aircraft from Pinnacleâs fleet effective on the expiration date of Deltaâs financing arrangement for each aircraft. The court filings do not reveal how many aircraft that could be.
Delta also can reduce the number, on a one-to-one basis, if it reaches agreements with Pinnacle for flying more regional jets with 70 or more seats.
Delta and Pinnacle also reached an agreement on early termination of Pinnacleâs contract to operate certain CRJ-900 aircraft for Delta, which will wind down some of that flying over a five-month period that begins in January 2013. But they are leaving it to the bankruptcy court to decide how much Delta should be paid in damages for that early termination.