Pinnacle Airlines Corp. Announces Fourth Quarter 2010 Financial Results

MEMPHIS, Tenn., Feb. 17, 2011 /PRNewswire/ — Pinnacle Airlines Corp. (Nasdaq: PNCL) (the “Company”) today reported fourth quarter 2010 net income of $2.6 million and diluted earnings per share (“EPS”) of $0.14, excluding a $10.9 million ($6.8 million after-tax) special charge to accrue for a signing bonus and related payroll taxes for pilots under a new tentative collective bargaining agreement (the “Pilot Signing Bonus”). Including this charge, the Company reported a net loss of $4.3 million and a net loss per share of $0.23 for the fourth quarter 2010. The Company reported net income and EPS of $5.6 million and $0.31, respectively, for the fourth quarter 2009.

Excluding the Pilot Signing Bonus, the Company’s consolidated net income for the full year 2010 was $19.6 million, a decrease of 16% compared to 2009 net income excluding special items. Full year 2010 EPS excluding the Pilot Signing Bonus was $1.06, a decrease of 17% as compared to 2009 EPS excluding special items. For a summary of the Pilot Signing Bonus and special items affecting 2009, please see the attached “Reconciliation of Non-GAAP Disclosures” tables.

In addition to the Pilot Signing Bonus, the Company’s fourth quarter 2010 financial results were negatively impacted by costs related to the initiation of new Q400 service for United Airlines. Colgan Air, Inc., (“Colgan”), the Company’s regional turboprop operating subsidiary, accepted delivery of six Q400 aircraft during the fourth quarter. Prior to placing the aircraft into service under the capacity purchase agreement with United, Colgan incurred interest and depreciation expense on the aircraft and labor costs associated with hiring and training crews for the aircraft. Implementation of the Q400 fleet expansion will continue through the first quarter, after which the Company expects the Q400 growth to have a favorable impact to 2011 earnings. In addition, the Company’s financial results for the fourth quarter were negatively impacted by winter storms in December. As is common within the regional airline industry, the Company’s subsidiaries cancelled a higher percentage of flights during irregular operations than the Company’s major airline partners so as to minimize the number of passengers affected by weather cancellations.

“We had a challenging fourth quarter,” said Philip Trenary, the Company’s President and Chief Executive Officer. “Winter storms impacted our operations during the quarter, at the same time that we were implementing growth with the delivery of Q400 aircraft. I want to thank all of our People for the outstanding job they did working through ice and snow storms within our system. I also want to express my appreciation to our customers who were impacted by winter storm disruptions in our system. We share their frustration with the difficulties presented by winter storms and appreciate their patience and understanding.”

Mesaba Aviation, Inc. (“Mesaba”), which the Company acquired on July 1, 2010, achieved operating income of $3.8 million and $6.8 million for the three and twelve months ended December 31, 2010, respectively. After taking into account interest expense on a $63.3 million note issued as part of the acquisition, Mesaba’s financial results have been accretive to the Company’s consolidated net income and EPS. In addition, the Company’s operating cash flows were improved by approximately $23 million during 2010 due to the acquisition of Mesaba.

Fourth Quarter 2010 Accomplishments
The Company took delivery of six Q400 aircraft during the fourth quarter of 2010 and placed three into service under the existing capacity purchase agreement with United Airlines. As of December 31, 2010, the Company operated 22 Q400 aircraft as United Express. The Company expects to take delivery of six Q400 aircraft in the first quarter of 2011 and place all but one of these aircraft into service by March 31. The Company is scheduled to take delivery of one additional aircraft in April and one in August 2011.

The Company and the Air Line Pilots Association reached a tentative agreement in December 2010 covering pilots at all three of the Company’s operating subsidiaries. The tentative agreement provides industry standard salary and benefits, which will result in a substantial increase in compensation for the majority of the Company’s pilots. The tentative agreement will also maintain the Company’s leading position within the industry, both in terms of attracting and retaining qualified pilots and in maintaining a highly productive and competitive workforce. Pilots at the Company’s three operating subsidiaries are conducting a vote to ratify the tentative agreement through February 17. If ratified, the majority of the new terms will go into effect March 1.

“I am extremely pleased that we were able to reach a tentative agreement with ALPA for an industry standard contract that brings together the pilots of Pinnacle, Mesaba and Colgan,” said Philip Trenary. “The tentative agreement provides for competitive compensation for our pilots and will help ensure that we maintain our place as a leader within the regional industry.”

Fourth Quarter 2010 Financial Operating Results
During the fourth quarter of 2010, Pinnacle Airlines, Inc. (“Pinnacle”), the Company’s largest regional airline operating subsidiary, completed 102,766 block hours and 65,974 departures, decreases of 1% and 1%, respectively, compared to the same period in 2009. Mesaba completed 62,831 block hours and 37,482 departures during the fourth quarter, with an average daily utilization of 7.6 block hours per day. Colgan completed 33,996 block hours and 26,700 departures during the fourth quarter, increases of 1% and 1%, respectively, from the same period in 2009.

The Company recorded consolidated operating revenue during the fourth quarter of 2010 of $291.6 million, an increase of $82.4 million, or 39%, over the same period in 2009. The increase in operating revenue was largely attributable to the acquisition of Mesaba, which contributed additional revenue of $69.8 million.

Excluding the Pilot Signing Bonus, Pinnacle reported fourth quarter 2010 operating income and operating margin of $12.4 million and 7.6%, a decrease of $1.1 million and 1.2 points, respectively, from the fourth quarter of 2009. As previously discussed, Pinnacle’s results were negatively impacted by winter storms in December.

Colgan reported an operating loss and negative margin of $1.9 million and 3.2%, a decrease of $6.2 million and 10.8 points from the same period in 2009. This decline is primarily related to increases in depreciation for Q400 aircraft delivered during the quarter and in salaries and benefits and training costs due to a 17% increase in headcount for the growth of Colgan’s operating fleet of Q400 aircraft. In addition, Colgan’s maintenance costs increased by 52% as compared to the fourth quarter of 2009, primarily as a result of increased repair costs and heavy maintenance checks on Colgan’s Saab fleet during the quarter. These increased maintenance costs are related to the timing of heavy maintenance requirements within the Saab fleet and the return of two Saab aircraft under lease, and are not expected to continue long-term.

Mesaba reported fourth quarter 2010 operating income and operating margin of $3.8 million and 5.4%, respectively. Operating income at Mesaba was in line with management’s expectations based on targeted results under Mesaba’s capacity purchase agreements with Delta Air Lines.

Net nonoperating expense of $10.4 million for the three months ended December 31, 2010 increased by approximately $0.3 million as compared to the same period in 2009. This increase is primarily related to the interest on a $63.3 million note issued as part of the acquisition of Mesaba. In addition, Colgan incurred additional interest related to eight owned Q400 aircraft that delivered during the second half of 2010. Revenue will increase in 2011 under the Company’s capacity purchase agreement with United to compensate for the increased ownership costs related to these new aircraft.

Cash and Cash Equivalents and Operating Cash Flow
The Company ended the quarter with total cash and cash equivalents of $100.1 million Operating cash flow was $5.0 million in the fourth quarter, meeting management’s previously announced expectations.

About Pinnacle Airlines Corp.
Pinnacle Airlines Corp. (Nasdaq: PNCL), an airline holding company, is the parent company of Pinnacle Airlines, Inc.; Colgan Air, Inc.; and Mesaba Aviation, Inc. Pinnacle Airlines, Inc. operates a fleet of 142 regional jets as Delta Connection in the United States, Belize, Mexico, and Canada. Colgan Air, Inc. operates a fleet of 55 regional turboprops as Continental Connection, United Express and US Airways Express in the northeastern United States and Texas. Mesaba Aviation, Inc. operates a fleet of 60 regional jets and 28 jet-prop aircraft as Delta Connection in the United States. The corporate headquarters is located in Memphis, Tenn. Airport hub operations are located in Atlanta, Boston, Detroit, Newark, New York – John F. Kennedy airport, Washington Dulles, Houston, Memphis, Minneapolis/St. Paul, and Salt Lake City. For further information about the Company, please refer to the Company’s Form 10-K for the year ended December 31, 2010, which will be filed soon with the SEC.