(Reuters) - Pinnacle Airlines Corp PNCL.O, parent of Pinnacle Airlines and Colgan Air, filed for bankruptcy protection, the latest victim of high fuel prices and dampened travel demand.
Memphis, Tennessee-based Pinnacle operates as various regional airlines - most notably Delta Connection - for bigger-name partners including Delta Air Lines (DAL.N), United Airlines (UAL.N) and US Airways LCC.N.
Pinnacle, in a filing late on Sunday, said it would rework its contracts with Delta and end flying for United and US Airways. The company also wants to cut its labor and operating costs.
The U.S. airline industry has been battered by soaring fuel costs and economic weakness that has drained travel demand. Regional carriers have felt the squeeze as their major partners cut back on flights to smaller cities.
“Quite simply, our current business model is not sustainable as increasing operating expenses, liquidity constraints, business integration delays and difficulties associated with combining our operations have hindered our ability to maximize our growth potential,” Sean Menke, Pinnacle’s president and chief executive, said in a statement.
Pinnacle, which has 8,000 employees, flies as Delta Connection, United Express and US Airways Express. It operates more than 1,540 daily flights to 188 cities and towns in the United States, Canada, Mexico and Belize.
The company said it had received a commitment for $74.3 million of debtor-in-possession (DIP) financing from Delta that would help it carry out normal operations.
“Delta will continue to support Pinnacle during its restructuring and is working closely with them to ensure there’s no impact to our customers,” Delta spokeswoman Betsy Talton said.
Ray Neidl, an airline analyst at Maxim Group, said that when Pinnacle stops flying for United and US Airways, its main reason for existence will be its deal with Delta.
Neidl said pressure on regional airline companies such as Pinnacle and Skywest Inc (SKYW.O) has been growing in recent years as high fuel costs cause major airlines to cut service to the smaller cities they serve with their regional partners.
As major airlines focus on larger cities, they require bigger airplanes, further marginalizing their regional partners, which fly smaller planes, he said.
“With high fuel costs, it’s much more uneconomical now to use the regionals into smaller cities and use smaller jets. That’s why regional airlines are generally moving up in size in the aircraft they operate,” Neidl said.
“The regional sector is shrinking and moving toward larger aircraft in general, and the number of participants is going to be declining,” he added.
In its bankruptcy filing, Pinnacle described its business model as a “race to the bottom,” with regional airlines forced to bid lower and lower for the business of major carriers.
Pinnacle’s contract with US Airways was already ending, and a spokesman for that airline said the bankruptcy has no effect on operations.
A spokesman for United said it would gradually move the United Express flying now done by Pinnacle’s Colgan to other carriers.
Pinnacle said it would seek wage reductions and other concessions from labor unions and hoped consensual agreements could be reached. Unions representing pilots and flight attendants at the company had no immediate comment.
In November, AMR Corp AAMRQ.PK, the parent of American Airlines, filed for bankruptcy and immediately flew into trouble with unions over negotiation of labor contracts.
In March, AMR sought bankruptcy court approval to throw out labor contracts, a move that puts new pressure on pilots, flight attendants and other unionized workers to agree quickly to concessions.
Pinnacle listed estimated assets and liabilities above $1 billion, according to the Sunday filing.
Shares of Pinnacle were down 54 percent at 63 cents on the Nasdaq Monday afternoon. Typically, shares of bankrupt companies are wiped out at the end of the bankruptcy process.
The case is Pinnacle Airlines Corp, Case No. 12-11343, U.S. Bankruptcy Court, Southern District of New York.
Reporting by Kyle Peterson in Chicago and Sakthi Prasad in Bangalore; additional reporting by Karen Jacobs in Atlanta and John Crawley in Washington; Editing by Michael Perry, Jeremy Laurence and Matthew Lewis