PNCL: Pinnacle Airlines Adds Low-Risk Capacity
Small-cap Watch List member Pinnacle Airlines (PNCL) issued a News Release announcing an arrangement to expand their role as offering regional connection service to Continental Airlines (CAL). According to the release, Pinnacle will operate fifteen 74-seat Bombardier Q400 regional aircraft as a Continental Connection carrier. The aircraft will operate primarily out of the Continental hub at Newark Liberty International Airport. Although a modest 8% expansion to their existing number of aircraft, the structure of the arrangement provides Pinnacle with a low-risk route to that growth.
Key commercial terms of the agreement include the following:* Continental will purchase all Q400 capacity at predetermined rates and industry standard pass-through costs. Fuel will be purchased directly by Continental and provided to Colgan at no cost.
* The aircraft will be delivered to Colgan from December 2007 through June 2008 and placed into service in early 2008.
* The capacity purchase agreement will be for a term of ten years from the date of the last Q400 delivery, extending to June 2018.
With the capacity pre-purchased, Pinnacle appears to have limited risk in this transaction.
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[…] Small Cap Watch List (Track at Marketocracy) member Pinnacle Airlines (PNCL) announced the following in an 8k Filing: Bombardier Aerospace announced today that Pinnacle Airlines Corp. of Memphis, Tenn. has signed a contract to acquire 15 Bombardier Q400 74-seat turboprop airliners. The transaction also includes conditional orders for another 10 Q400 aircraft and options on an additional 20.The value of the 15 firm ordered aircraft, based on the list price of the Q400 aircraft, is approximately $381 million US. The value could rise to $1.2 billion US if all conditional orders and options are exercised. Pinnacle typically operates under a fairly safe business model under which it leases most of its capacity to major carriers for whom it provides regional connections. Still, there are some residual risks and capacity additions always bring further risk of excess supply. But even though risks remain, the business model is one of the safest in the airline industry. […]
[…] The “capacity purchase agreement” sounds similar to that described in another article. The fact that the capacity has been sold in advance reduces Pinnacle’s risk. […]