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Delta To Sever Contract With Pinnacle Airlines

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The Associated Press

Published: June 11, 2008

ATLANTA - Pinnacle Airlines Corp. shares fell $1.54, or 25.75 percent, Tuesday to close at $4.44 after it disclosed that Delta Air Lines plans to cancel its flying contract with the regional carrier, citing poor on-time performance.

Northwest Airlines, Pinnacle's biggest customer, has no plans to change its relationship with Pinnacle. However, Delta is acquiring Northwest, worrying investors about what that might mean for Pinnacle's future if the contract termination sticks.

"We think today's news shows how a Delta-Northwest merger may hurt Pinnacle," Standard & Poor's airline analyst Jim Corridore said in a research note.

Memphis, Tenn.-based Pinnacle called the move against it by Delta "wrongful," saying its on-time performance has been hurt by factors beyond its control. It said the operational schedule created by Delta is a key factor affecting on-time performance.

Pinnacle said it plans to pursue "appropriate remedies," though it wasn't more specific. The move by Delta would affect nearly 5 percent of the fleet maintained by Pinnacle Airlines Corp., which operates Pinnacle and Colgan Air. The Delta contract represents about $3.5 million in monthly revenue for Pinnacle, which recorded $787 million in annual revenue last year, Pinnacle spokesman Joe Williams said.

It's the latest move by Atlanta-based Delta to terminate a contract with one of the regional carriers that handles connecting flights for the nation's third-largest airline.

A federal judge in late May blocked Delta's effort to terminate a contract with a Mesa Air Group subsidiary. Delta has said it will appeal that decision.

Delta has said it has the right to terminate the contract with Mesa subsidiary Freedom Airlines because Freedom did not maintain at least a 95 percent completion rate for three months within a six-month period late last year and early this year.

Delta, meanwhile, stood by its decision regarding Pinnacle, saying Pinnacle's operational performance has fallen below minimum levels required under the contract.

Pinnacle said Delta plans to end the contract as of July 31.

The airline said its schedule, routes and employees will not be immediately affected.

Pinnacle has nine CRJ-900 aircraft for use as a Delta Connection carrier under an agreement reached in 2007.

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