Pinnacle's Delta Connection Contract Terminated (PNCL, DAL, MESA)

Pinnacle Airlines Inc. (NASDAQ: PNCL) might as well have its wings clipped if you look at the news from this morning.   Delta Air Lines, inc. (NYSE: DAL) has given notice of contract termination regarding its Delta Connection contract with Pinnacle.  The effective date is on July 31.

Delta Air Lines claims that Pinnacle (NASDAQ: PNCL) did not meet the minimum arrival-time performance requirements for a period since flights began late last year, and Pinnacle plans to fight this contract termination as the airline said factors affecting on-time performance are beyond its control.  Pinnacle’s CEO said its operational schedule is created by Delta and is a key component of on-time performance.

If this sounds familiar from Delta, there is a reason.  Mesa Air Group (NASDAQ: MESA) saw a similar move in April, when Delta’s announced its intent to terminate its Delta Connection program with Mesa’s Freedom Airlines Inc.  The problem was similar: due to a problem with the number of flights Freedom completed.  However, last month Mesa won a preliminary injunction against Delta to keep Delta from canceling the contract.  The ultimate and final outcome there is still pending.

Pinnacle is now trading at another 52-week low, which is becoming all too familiar in the airline industry.  Shares are down 20% at $4.76 after 45 minutes of trading.  The 52-week trading range is (well, was) $5.90 to $20.34.

If we weren’t in an environment of $130+ oil right now, you have to wonder if Delta would be trying to cancel its partnerships or not.  Tattoo is chasing them right now. You can hear him.  "Boss! The pain! The pain!"

Jon C. Ogg
June 10, 2008