Pinnacle Airlines' Profits Off

Pinnacle Airlines Corp. rode out a rocky first quarter with earnings of $9.4 million, or 38 cents a share, down from $11.3 million and 61 cents a share last year.

Analysts expected 40 cents a share.

Pinnacle blames the bulk of the loss on contract it worked out with Northwest Airlines late last year that cut operating revenue by $78.3 million.

Pinnacle also took a hit - in the form of a $1.1 million penalty from Northwest - for the number of flights it canceled in February and March because it didn't have enough pilots to fly them.

While it says its pilot count is now on target, the company expects a similar penalty in the second quarter.

The pilot shortage cost the Memphis-based airline $1.5 million in the quarter in additional training costs, plus stepped up expenses for recruiting and training.

For the period ended March 31, Pinnacle reported operating revenue of $179.6 million, down $27.5 million, or 13 percent, as it transitions from a "captive carrier with limited growth" to an independent airline with room to grow, said Phil Trenary, president and chief executive.

"This year will be one of the most important in the company's history," he said.

But the growing pains cost it efficiency in the period, including a jump in airplane maintenance, which went from $10,262 to $17,548 due to the older turboprops it acquired when it purchased Colgan Air in January.

Increased ground handling assignments from Northwest cut Pinnacle's operating income by $600,000 as it staffed to manage the load. Flight attendant signing bonuses cost another $400,000.

Colgan, the family-owned airline Pinnacle bought to broaden its portfolio and access to major airline contracts, lost $100,000 in its traditionally slow first period.

While Pinnacle expects the outlook to brighten in the second and third quarters, it doesn't expect Colgan to show a significant gain or loss in the first year.

"As we apply our knowledge of running a larger airline and our expertise with Saabs, we think we can improve Colgan's cost structure," said Peter Hunt, Pinnacle chief financial officer.

The Colgan announcement set off a buying spree at Pinnacle that Wall Street celebrated as Pinnacle flexing its muscle as an independent carrier.

"The truth is they had a very tough year, and I hope it's behind them," said Darryl Jenkins, an independent airline consultant. "Not having enough pilots is a serious management mistake. You cannot blame these kinds of errors on other people.

"For what its worth, they had a bad year, but they aren't a bad management group. I'm hoping this is one-time occurrence."

In February, Pinnacle announced it was purchasing 15 74-seat Q400s to fly passengers for Continental out of its busy Newark, N.J., hub.

In late April, it announced it was buying 16 76-seat CRJ-900s to fly routes for Delta Airlines.

"We expect the investments we are making at our two operating subsidiaries to establish profitable growth," Hunt said. "With the addition of 31 aircraft through early 2009, the combined fleet our subsidiaries will grow 18 percent."

Pinnacle ended the quarter with $324,150 million in cash, including $42.5 million in an unsecured claim against Northwest.

"We're evaluating the right amount of cash we should hold on our balance sheet," Hunt said. "If we determine we have excess, we don't intend to sit on it but it will be a shareholder-friendly move. We'll make that decision fairly quickly."

With its track record of finding new customers - and now with a fleet varied enough to fill many needs, Trenary is confident in the outlook, calling the Q400 and CRJ900 "a pretty neat combination."

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