Pinnacle Airlines Inc.PNCL

Morningstar Rating

Stock Research and Analysis

by Basili Alukos, CPA

Even with tremendous growth plans, Pinnacle's heavy dependence on Northwest Airlines (now part of Delta Air Lines DAL) and deteriorating industry conditions may create insurmountable obstacles for increasing long-term profitability.

Regional airline Read more

Bulls Say

Pinnacle's recent capacity additions have come from the larger, more desirable CRJ-900 and Q400 turboprop planes. With seating capacities as high as 90, this should make the firm a more desirable regional carrier provider.

Pinnacle secured a new capacity purchase agreement with Continental that should create a nice tail wind in the coming years.

Pinnacle's decision to finance the Q400 and CRJ900 aircraft itself should help preserve the airline's longevity because it will no longer rely exclusively on subleasing arrangements like the one embedded in its Northwest ASA. Read more

Bears Say

Beginning in 2008, the amended Northwest ASA agreement removed Pinnacle's minimum operating margin. Furthermore, the agreement created an operating margin ceiling, requiring Pinnacle to remit the excess profits to Northwest. Both contract amendments will hinder operating profits.

The amended Northwest ASA agreement also reduced Pinnacle's embedded operating profit margin to 8% from 10%. Not only does this reduction reveal Northwest's bargaining power, but it also has hurt Pinnacle's profitability.

At the start of 2008, Northwest accounted for a staggering 75% of Pinnacle's revenue. Any financial problems with Northwest could hurt the regional carrier's revenue. Read more

Strategy

Pinnacle's 2007 acquisition of Colgan Air opened the door for a capacity purchase agreement to fly 16 larger, more-economical Q400 planes under Continental's banner. This agreement also illustrates Pinnacle's Read more

Management

Philip H. Trenary, Pinnacle's CEO since April 1997, has steered the regional carrier through the most turbulent of times. In fact, we attribute the very existence of Pinnacle today to Trenary and his executive team, who worked vigorously to retain the Read more

Profile

Pinnacle operates under two wholly owned regional subsidiaries: Pinnacle Airlines, which flies 139 CRJ-200 planes and primarily services Northwest Airlines at its Detroit, Read more

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