SOURCE: Pinnacle Airlines

November 06, 2008 07:00 ET

Pinnacle Airlines Corp. Reports Third Quarter 2008 Financial Results

Company Reports Consolidated Net Income of $7.7 Million

MEMPHIS, TN--(Marketwire - November 6, 2008) - Pinnacle Airlines Corp. (NASDAQ: PNCL) (the "Company") today reported third quarter 2008 net income of $7.7 million and fully diluted earnings per share ("EPS") of $0.43. The Company reported net income and EPS of $10.9 million and $0.48, respectively, for the third quarter of 2007.

The Company reported consolidated operating income of $20.0 million during the third quarter of 2008, an increase of 33% over the third quarter of 2007. During the third quarter of 2008, Pinnacle Airlines, Inc. ("Pinnacle"), the Company's regional jet operating subsidiary, reported operating income and an operating margin of $12.0 million and 8.1%, respectively, while Colgan Air, Inc. ("Colgan"), the Company's regional turboprop operating subsidiary, reported operating income and an operating margin of $8.0 million and 10.9%, respectively.

"We are very proud of our People at Colgan and Pinnacle," said Phil Trenary, the Company's chief executive officer. "Thanks to their focus, hard work, and dedication, Colgan's financial performance dramatically improved and Pinnacle led all regional carriers and most mainline carriers in the United States in on-time performance during the third quarter of 2008."

Significant recent accomplishments of the Company and its two operating subsidiaries include the following:

Recent Significant Events

-- Colgan took delivery of two Q400 aircraft during the third quarter to be operated under its capacity purchase agreement with Continental Airlines. With the addition of these two aircraft, Colgan now operates 15 Q400 aircraft as Continental Connection, primarily out of Continental's hub at Newark Liberty International Airport. Operating and financial performance related to the Q400 was strong during the third quarter, contributing significantly to the improved operating income at Colgan.

-- The Company entered into an agreement with Delta to operate on a short-term basis seven additional CRJ-900 aircraft that were formerly operated by another Delta Connection carrier. The Company's Pinnacle subsidiary will temporarily operate these seven CRJ-900 aircraft until Pinnacle's seven remaining permanent CRJ-900 aircraft begin operations under the Delta Connection Agreement in the first half of 2009. Pinnacle has received and is operating four of the additional seven temporary CRJ-900 aircraft, and expects to receive the remaining three in November 2008. In addition, Pinnacle accepted delivery of two of its permanent CRJ-900 aircraft fleet during the third quarter. These aircraft are being used as spares to support Pinnacle's Delta Connection operations until they are placed into full service under the Delta Connection Agreement in January 2009.

-- Colgan continues to execute on its pro-rate turn-around plan, with six Saab 340 and three Beech 1900 aircraft scheduled to retire during the fourth quarter. The Company is negotiating with United to retain certain routes as a United Express carrier at United's hub at Washington Dulles International Airport that previously the Company intended to eliminate. The Company anticipates continuing to operate in these markets with a modified pro-rate agreement that provides for a connecting passenger incentive payment from United to mitigate the risk of volatile fuel costs. The Company is working to finalize this agreement with United during the fourth quarter.

-- Pinnacle led the regional airline industry in operating performance during the third quarter of 2008, achieving the best on-time performance of all regional airlines reporting to the Department of Transportation. In addition, Pinnacle led all U.S. airlines reporting to the Department of Transportation in on-time performance for the month of July.

-- In November 2008, the Company amended its revolving credit facility collateralized by the Company's auction rate securities portfolio. This amendment extends the maturity date from February 2009 to November 2009 and provides for additional borrowings of up to $10 million to be used to fund purchases or redemptions of other indebtedness of the Company.

-- On October 29, 2008, Delta and Northwest completed their previously announced merger. The Company is the second largest independent corporate regional partner for the combined Delta/Northwest operation, with 139 aircraft in the Delta network. The Company does not believe that this merger will have a material adverse effect on its operations, as its capacity purchase agreements with Delta are relatively long-term and do not contain early termination provisions that could be triggered by consolidation.

"On behalf of the Pinnacle family, I want to congratulate Delta and Northwest on merging to form the world's largest commercial airline company," said Phil Trenary. "Our industry-leading performance and competitive costs provide a solid foundation for continuing our strong relationship with Delta."

Third Quarter 2008 Financial and Operating Results

Pinnacle completed 107,632 block hours and 66,779 departures, decreases of 4% and 2%, respectively, over the same period in 2007. Pinnacle's capacity decreased due to the return of 15 CRJ-200 aircraft operating under its Airline Services Agreement ("ASA") with Northwest, partially offset by the addition of ten CRJ-900 aircraft operating under its Delta Connection Agreement ("DCA"). Colgan completed 43,004 block hours and 34,320 departures during the third quarter, increases of 22% and 14%, respectively, over the same period in 2007. The addition of Colgan's Q400 aircraft fleet was the primary factor in the growth in its operations.

The Company recorded consolidated operating revenue of $221.8 million, an increase of $16.1 million, or 8%, over the same period in 2007. This increase is primarily related to revenue earned under the Company's new contracts with Delta and Continental, offset by a decrease in revenue in its Northwest Airlink and pro-rate operations. Consolidated operating income and operating margin were $20.0 million and 9.0%, respectively, during the third quarter of 2008. Consolidated operating income and operating margin for the third quarter of 2007 were approximately $15.0 million and 7.3%, respectively.

Pinnacle reported operating income and operating margin of $12.0 million and 8.1%, a decline of $3.9 million from the third quarter of 2007. Operating income declined due to the previously mentioned reduction in capacity, and due to ongoing transitional costs associated with the start-up of Pinnacle's CRJ-900 operations for Delta. Pinnacle had planned to operate at a higher level of capacity in both its Delta Connection and Northwest Airlink operations, and hired and retained crews accordingly. These higher levels of staffing led to lower productivity and a higher unit labor cost during the third quarter of 2008 than expected. In addition, Pinnacle incurred approximately $0.75 million of unreimbursed costs associated with two CRJ-900 aircraft that delivered during the third quarter but that will not enter into service under the DCA until January 2009. Pinnacle also began certain upgrades to its CRJ-200 fleet during the third quarter to improve the mechanical reliability of the fleet during the upcoming winter months. These maintenance upgrades, which are not reimbursable maintenance costs under Pinnacle's ASA, also contributed to lower operating income.

Colgan reported operating income and operating margin of $8.0 million and 10.9%, an increase of $8.9 million from the third quarter of 2007. The addition of Colgan's Q400 aircraft fleet contributed significantly to the improvement in operating income during the third quarter. In addition, Colgan's revenue per available seat mile within its pro-rate operations increased by 9% year over year. This increase in revenue was partially offset by a $4.0 million increase in fuel costs from the third quarter of 2007. Colgan's fuel cost per gallon during the third quarter of 2008 was $3.79. Colgan's third quarter 2008 results included a charge related to the previously announced retirement of a portion of the Company's Saab 340 and Beech 1900 fleet totaling $1.1 million ($0.7 million net of related income taxes), and a credit resulting from a correction of an error that reduced maintenance expense by $1.4 million ($0.9 million net of related income taxes). Together these two items increased the Company's third quarter 2008 EPS by $0.01.

Net interest expense for the third quarter was approximately $9.0 million, as compared to net interest income of $1.4 million during the third quarter of 2007. The increase in net interest expense is driven by interest costs from the investments the Company has made in its new fleet of Q400 and CRJ-900 aircraft.

Net income for the third quarter was $7.7 million, as compared to net income during the third quarter of 2007 of $10.9 million.

Cash and Investments

The Company ended the quarter with unrestricted cash and cash equivalents totaling $63.8 million.

The Company generated $14.7 million in cash and cash equivalents from operating activities during the third quarter 2008. Cash used for investing activities of $5.8 million primarily related to non-aircraft capital expenditures and the net purchase of aircraft. Cash used in financing activities was $10.3 million, which included $4.8 million in debt repayments associated with the Company's aircraft pre-delivery payment financing facilities and $5.5 million of regularly scheduled principal payments on long-term debt and other items.

About Pinnacle Airlines Corp.

Pinnacle Airlines Corp., an airline holding company, is the parent company of Pinnacle Airlines, Inc. and Colgan Air, Inc. Pinnacle Airlines, Inc. operates under the name Northwest Airlink and Delta Connection and operates 124 CRJ-200 and 15 CRJ-900 regional jet aircraft in the United States, Canada, the Bahamas, Mexico, U.S. Virgin Islands, and Turks and Caicos Islands. Colgan Air, Inc. operates as Continental Connection, United Express and US Airways Express and operates a fleet of 15 Q400, 37 Saab 340 and four Beech 1900 turboprop regional aircraft.

Forward-Looking Statements

This press release contains various forward-looking statements that are based on management's beliefs, as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions, including those set forth in our filings with the Securities and Exchange Commission, which are available to investors at our website or online from the Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove erroneous, actual results may vary materially from results that were anticipated or projected. The Company does not intend to update these forward-looking statements before its next required filing with the Securities and Exchange Commission.

For further information, please contact Joe Williams, at (901) 346-6162, or visit our website at www.pncl.com.

                      Pinnacle Airlines Corp.
        Condensed Consolidated Statements of Income (Unaudited)
               (in thousands, except per share data)

                                                       Three Months Ended
                                                          September 30,
                                                      --------------------
                                                        2008       2007
                                                      ---------  ---------
Operating revenues
   Regional airline services                          $ 220,242  $ 203,271
   Other                                                  1,550      2,459
                                                      ---------  ---------
Total operating revenues                                221,792    205,730

Operating expenses
   Salaries, wages and benefits                          57,428     52,830
   Aircraft fuel                                         14,831     10,785
   Aircraft maintenance, materials and repairs           20,455     22,468
   Aircraft rentals                                      31,411     35,049
   Other rentals and landing fees                        19,537     15,307
   Ground handling services                              21,651     24,520
   Commissions and passenger related expense              7,183      7,120
   Depreciation and amortization                          7,586      2,448
   Other                                                 20,631     20,196
   Impairment of goodwill and aircraft lease return
    costs                                                 1,069          -
                                                      ---------  ---------
Total operating expenses                                201,782    190,723
                                                      ---------  ---------

Operating income                                         20,010     15,007
Operating income as a percentage of operating
 revenues                                                   9.0%       7.3%

Nonoperating (expense) income
   Interest income                                        1,289      2,521
   Interest expense                                     (10,253)    (1,128)
   Miscellaneous income (expense) income                    192        (11)
                                                      ---------  ---------
Total nonoperating (expense) income                      (8,772)     1,382
                                                      ---------  ---------
Income before income taxes                               11,238     16,389
Income tax expense                                       (3,521)    (5,485)
                                                      ---------  ---------
Net income                                            $   7,717  $  10,904
                                                      =========  =========

Basic earnings per share                              $    0.43  $    0.53
                                                      =========  =========

Diluted earnings per share                            $    0.43  $    0.48
                                                      =========  =========

Shares used in computing basic earnings per share        17,867     20,470
                                                      =========  =========
Shares used in computing diluted earnings per share      17,891     22,544
                                                      =========  =========




                      Pinnacle Airlines Corp.
        Condensed Consolidated Statements of Income (Unaudited)
               (in thousands, except per share data)

                                                       Nine Months Ended
                                                          September 30,
                                                      --------------------
                                                        2008       2007
                                                      ---------  ---------
Operating revenues
   Regional airline services                          $ 640,414  $ 578,696
   Other                                                  6,873      7,578
                                                      ---------  ---------
Total operating revenues                                647,287    586,274

Operating expenses
   Salaries, wages and benefits                         169,901    150,392
   Aircraft fuel                                         41,603     26,718
   Aircraft maintenance, materials and repairs           65,997     62,941
   Aircraft rentals                                      97,439    103,997
   Other rentals and landing fees                        52,386     44,359
   Ground handling services                              72,712     73,236
   Commissions and passenger related expense             21,436     17,935
   Depreciation and amortization                         18,566      6,820
   Other                                                 64,298     57,222
   Impairment of goodwill and aircraft lease return
    costs                                                13,688          -
                                                      ---------  ---------
Total operating expenses                                618,026    543,620
                                                      ---------  ---------

Operating income                                         29,261     42,654

Operating income as a percentage of operating
 revenues                                                   4.5%       7.3%

Nonoperating (expense) income
   Interest income                                        5,326      8,468
   Interest expense                                     (23,915)    (6,109)
   Impairment of auction rate securities                 (8,675)         -
   Loss on sale of unsecured claim                            -     (4,144)
   Miscellaneous  income                                    166        325
                                                      ---------  ---------
Total nonoperating expense                              (27,098)    (1,460)
                                                      ---------  ---------
Income before income taxes                                2,163     41,194
Income tax expense                                       (3,244)   (13,263)
                                                      ---------  ---------
Net income (loss)                                     $  (1,081) $  27,931
                                                      =========  =========

Basic earnings (loss) per share                       $   (0.06) $    1.31
                                                      =========  =========

Diluted earnings (loss) per share                     $   (0.06) $    1.17
                                                      =========  =========

Shares used in computing basic (loss) earnings per
 share                                                   17,864     21,398
                                                      =========  =========
Shares used in computing diluted (loss) earnings per
 share                                                   17,864     23,863
                                                      =========  =========




                       Pinnacle Airlines Corp.
                 Condensed Consolidated Balance Sheets
                   (in thousands, except share data)

                                                   September     December
                                                    30, 2008     31, 2007
                                                  -----------  -----------
Assets                                            (Unaudited)
Current assets
   Cash and cash equivalents                      $    63,829  $    26,785
   Restricted cash                                      4,558        5,327
   Short-term investments                                   -      186,850
   Receivables, net                                    33,594       31,107
   Spare parts and supplies, net                       23,436       16,030
   Prepaid expenses and other assets                   10,836       16,535
   Deferred income taxes, net of allowance             13,677       12,285
   Income taxes receivable                             26,979            -
                                                  -----------  -----------
      Total current assets                            176,909      294,919
Property and equipment
   Flight equipment                                   645,069      162,374
   Aircraft pre-delivery payments                      12,877       81,425
   Other property and equipment                        44,372       39,969
   Less accumulated depreciation                      (46,252)     (28,358)
                                                  -----------  -----------
      Net property and equipment                      656,066      255,410
Investments                                           126,925            -
Deferred income taxes, net of allowance                53,004       79,856
Other assets, primarily aircraft lease deposits        33,470       28,528
Debt issuance costs, net                                6,514        4,598
Goodwill                                               18,422       28,206
Intangible assets, net                                 15,002       17,071
                                                  -----------  -----------
Total assets                                      $ 1,086,312  $   708,588
                                                  ===========  ===========

Liabilities and stockholders' equity
Current liabilities
   Short-term notes payable and current
    maturities of long-term debt                  $    37,522  $    73,513
   Bank lines of credit                                88,275        8,375
   Accounts payable                                    26,838       33,062
   Deferred revenue                                    23,861       24,099
   Accrued expenses and other current liabilities      82,498      104,410
                                                  -----------  -----------
      Total current liabilities                       258,994      243,459
Senior convertible notes                              121,000      121,000
Long-term debt, less current maturities               452,691       71,812
Deferred revenue, net of current portion              192,555      209,752
Other liabilities                                       7,904        4,743
Commitments and contingencies
Stockholders' equity
   Common stock, $0.01 par value; 40,000,000
    shares authorized; 22,514,782 and
    22,402,999 shares issued, respectively                225          224
   Treasury stock, at cost, 4,450,092 shares          (68,152)     (68,152)
   Additional paid-in capital                          93,241       91,165
   Accumulated other comprehensive loss               (15,850)     (10,200)
   Retained earnings                                   43,704       44,785
                                                  -----------  -----------
Total stockholders' equity                             53,168       57,822
                                                  -----------  -----------
Total liabilities and stockholders' equity        $ 1,086,312  $   708,588
                                                  ===========  ===========




                        Pinnacle Airlines Corp.
       Condensed Consolidated Statements of Cash Flows (Unaudited)
                           (in thousands)

                                                        Nine Months Ended
                                                          September 30,
                                                      --------------------
                                                        2008       2007
                                                      ---------  ---------
Cash provided by operating activities                 $  13,668  $ 277,022
Cash provided by (used in) investing activities          25,697   (257,840)
Cash used in financing activities                        (2,321)   (14,020)
                                                      =========  =========
Net increase in cash and cash equivalents                37,044      5,162
Cash and cash equivalents at beginning of period         26,785        705
                                                      ---------  ---------
Cash and cash equivalents at end of period            $  63,829  $   5,867
                                                      =========  =========




                        Pinnacle Airlines Corp.
                    Operating Statistics (Unaudited)

                                Pinnacle Airlines, Inc.
            --------------------------------------------------------------
             Three Months Ended September     Nine Months Ended September
                          30,                             30,
            ------------------------------  ------------------------------
              2008       2007      Change     2008       2007      Change
            ---------  ---------  -------   ---------  ---------  -------
Other Data:
Revenue
 passengers
 (in
 thousands)     2,619      2,636       (1)%     7,770      7,477        4 %
Revenue
 passenger
 miles
 "RPMs" (in
 thousands) 1,236,067  1,230,775        0 % 3,622,776  3,471,275        4 %
Available
 seat miles
 "ASMs" (in
 thousands) 1,598,929  1,562,621        2 % 4,715,054  4,528,179        4 %
Passenger
 load
 factor          77.3%      78.8% (1.5) pts.     76.8%      76.7%  0.1 pts.
Operating
 revenue
 per ASM
 (in cents)      9.27       9.64       (4)%      9.72       9.79       (1)%
Operating
 cost per
 ASM (in
 cents)          8.52       8.62       (1)%      8.88       8.84        0 %
Operating
 revenue
 per block
 hour       $   1,377  $   1,340        3 % $   1,382  $   1,347        3 %
Operating
 cost per
 block hour $   1,265  $   1,198        6 % $   1,262  $   1,217        4 %
Block hours   107,632    112,378       (4)%   331,744    329,201        1 %
Departures     66,779     68,370       (2)%   200,568    199,598        0 %
Average
 daily
 utilizati-
 on (block
 hours)          8.74       8.77        0 %      8.91       8.79        1 %
Average
 stage
 length
 (miles)          465        461        1 %       462        460        0 %

Number of
 operating
 aircraft
 (end of
 period)
   CRJ-200        124        139      (11)%
   CRJ-900         11          -      100 %
Employees
 (end of
 period)        4,164      4,061        3 %




                         Pinnacle Airlines Corp.
                    Operating Statistics (Unaudited)

                                     Colgan Air, Inc.
                ----------------------------------------------------------
                Three Months Ended September   Nine Months Ended September
                             30,                           30,
                -----------------------------  ---------------------------
                  2008     2007      Change      2008     2007    Change
                -------  -------   ---------   -------  -------  --------

Pro Rate
 Agreements:
Revenue
 passengers (in
 thousands)         356      425         (16)%   1,082    1,112        (3)%
RPMs (in
 thousands)      65,192   78,475         (17)% 197,977  206,046        (4)%
ASMs (in
 thousands)     146,997  164,907         (11)% 446,643  443,782         1 %
Passenger load
 factor            44.3%    47.6%   (3.3) pts.    44.3%    46.4% (2.1) pts.
Passenger yield
 (in cents)       82.26    70.22          17 %   77.76    69.29        12 %
Operating
 revenue per
 ASM (in cents)   36.48    33.42           9 %   34.47    32.17         7 %
Operating
 revenue per
 block hour     $ 1,804  $ 1,560          16 % $ 1,675  $ 1,512        11 %
Block hours      29,722   35,329         (16)%  91,888   94,433        (3)%
Departures       25,679   30,049         (15)%  77,147   79,982        (4)%
Fuel
 consumption
 (in thousands
 of gallons)      3,918    4,459         (12)%  11,535   12,583        (8)%
Average price
 per gallon     $  3.79  $  2.39          59 % $  3.61  $  2.25        60 %
Average fare    $   151  $   130          16 % $   142  $   128        11 %

Capacity
 Purchase
 Agreement:
Revenue
 passengers (in
 thousands)         394        -         100 %     770        -       100 %
Revenue
 passenger
 miles (in
 thousands)     109,687        -         100 % 214,582        -       100 %
ASMs (in
 thousands)     175,823        -         100 % 325,365        -       100 %
Passenger load
 factor            62.4%       -     62.4 pts.    66.0%       -   66.0 pts.
Operating
 revenue per
 ASM (in cents)   11.36        -         100 %   10.74        -       100 %
Operating
 revenue per
 block hour     $ 1,504        -         100 % $ 1,413        -       100 %
Block hours      13,282        -         100 %  24,741        -       100 %
Departures        8,641        -         100 %  15,927        -       100 %

Total Colgan:
Block hours      43,004   35,329          22 % 116,629   94,433        24 %
Departures       34,320   30,049          14 %  93,074   79,982        16 %
ASMs (in
 thousands)     322,820  164,907          96 % 772,008  443,782        74 %
Total operating
 cost per ASM
 (in cents)       20.34    33.99         (40)%   25.83    32.27       (20)%
Total operating
 cost per ASM
 (in cents)
  (excluding
   impairment
   of goodwill
   and aircraft
   lease return
   costs)         20.01    33.99         (41)%   24.06    32.27       (25)%
Total operating
 cost per block
 hour           $ 1,527  $ 1,587          (4)% $ 1,710  $ 1,517        13 %
Total operating
 cost per block
 hour
  (excluding
   impairment
   of goodwill
   and aircraft
   lease return
   costs)       $ 1,502  $ 1,587          (5)% $ 1,593  $ 1,517         5 %

Average daily
 utilization
 (block hours)    10.76     7.95          35 %    8.63     7.36        17 %
Average stage
 length (miles)     221      185          19 %     209      184        14 %
Number of
 operating
 aircraft (end
 of period)
   Saab 340          37       42         (12)%
   Beech 1900         4        7         (43)%
   Q400              15        -         100 %
Employees         1,389    1,244          12 %

Contact Information

  • For further information, please contact:
    Joe Williams
    (901) 346-6162
    www.pncl.com