Pinnacle Airlines Corp. Q4 2009 Earnings Call Transcript

| About: Pinnacle Airlines (PNCLQ)

Pinnacle Airlines Corp. (PNCL)

Q4 2009 Earnings Call

February 18, 2010 10:00 AM ET


Philip H. Trenary – President and Chief Executive Officer

Peter D. Hunt – Chief Financial Officer


Mike Widmer - Bank of America

Garrett Wilson - Sirius Advisors

(Arthur Calatino) - John Hancock Advisers

Duane Pfennigwerth – Raymond James


Good day ladies and gentlemen, and welcome to the Fourth Quarter 2009 Pinnacle Airlines Corporation Earnings Conference Call. My name is Gina and I will be your operator for today. (Operator Instructions).

I would now like to turn this conference over to your host for today, Mr. Philip Trenary, President and Chief Executive Officer. Please proceed.

Philip Trenary

Thank you Gina and good morning everyone. Welcome to the fourth quarter 2009 earnings conference call of Pinnacle Airlines Corp. On behalf of the more than 5,000 employees at Pinnacle, I would like to thank you for your interest in our company.

This call is being presented live over the Internet via webcast from our website, It will also be available on our site for 30 days after this call.

This presentation contains various forward-looking statements that are based on management’s beliefs, as well as assumptions made by and information currently available to management.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Such statements are subject to certain risks, uncertainties and assumptions including those set forth in our filings with the Securities and Exchange Commission, which are available to our investors at our website or online from the Commission.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove erroneous, actual results may vary materially from the results that were anticipated or projected. The company does not intend to update these forward-looking statements before its next required filing with the Securities and Exchange Commission.

Again, good morning and thank you for joining us for this call. What a difference a year has made and I would like to go right into the financial presentations. I will turn it over to Peter Hunt, our Chief Financial Officer.

Peter Hunt

Thanks Phil and good morning everyone. Thanks again for joining us today to go through our fourth quarter results. This morning we did report fourth quarter fully diluted earnings per share at $0.31 and that was an increase of 158% over our EPS in the fourth quarter of ‘08 of $0.12, which excluded special charges.

You may remember in the fourth quarter of ’08, we also had some special charges related to the impairment of our auction rate securities. But excluding those, we were $0.12 a year ago and up 158% from that.

Looking at our capacity at our regional jet subsidiary Pinnacle, our block hours were down 7% over the fourth quarter of ’08 to 103,915 and our departures were down 1% to 66,619. There's two primary reasons for the decreases in our block hours and departures.

We were flying a couple of extra CRJ-900 aircraft last year for Delta. These were temporary aircraft that were added to our fleet as they were transitioning back from another one of Delta’s partners.

And then, on top of that, what we’ve seen all year, throughout 2009 is a decrease in our average stage length. Our average stage length was 422 miles in the quarter which was down about 7% year-over-year.

The big driver there is the CRJ-200’s being flown on smaller stage lengths which means they have more departures, spend more time on the ground and the utilization on a daily basis is down.

We did end the year, with 126 CRJ-200 aircraft, which is two aircraft more than a year ago, but you also may recall we added those aircraft back earlier in the year just as operational spares. The number of scheduled CRJ-200 aircraft is the same. And we ended with 16 CRJ-900 aircraft as well.

Turning to our turboprop subsidiary, our block hours were 33,766 in the fourth quarter of ’09. That was down 7% year-over-year. Our departures were also down 7% to 26,466. This is primarily driven by changes in our fleet.

We were flying one less Q400 in the fourth quarter of ’09 versus last year and we flew fewer block hours in our Saab pro-rate flying, primarily related to a lot of the changes we made in the fourth quarter of last year in response to the very high fuel prices that we had in 2008. We ended the year with 14 Q400 aircraft and 34 Saab 340 aircraft.

Looking at our financial results, our operating revenue for the fourth quarter was $209 million. That was down about 4% year-over-year and our operating income on a consolidated basis was $17.8 million, that was an increase of $1.5 million year-over-year, up about 9%. Our margin was 8.5% in the fourth quarter, which was up one point from the fourth quarter of ’08.

At our regional jet subsidiary Pinnacle, our operating income was $13.5 million, that was down just under $0.5 million year-over-year. One of the primary drivers affecting Pinnacle in the fourth quarter this year relates to a contractual dispute we have with Delta, our largest partner. It relates to aviation insurance reimbursements and this is a dispute that came up late in the third quarter, and we talked about it on our last call.

Until we resolve this matter with Delta, the revenue recognition rules under Generally Accepted Accounting Principals are fairly rigorous. It’s a fairly tough standard to record revenue.

And so, until we resolve this, we won't record any revenue associated with the un-reimbursed amounts on insurance. And in the fourth quarter, that amounted to about $1.7 million of revenue that we did not record.

Turning to our turboprop subsidiary Colgan, our operating income was actually up year- over-year. We were up $1.8 million, to an operating income of $4.3 million. One of the big contributors, as was the case throughout 2009, was lower fuel prices. Our average price per gallon was down about 9% year-over-year. Our consumption was also down, primarily driven by the decreased pro-rate flying that we had and that did result in the improved operating income year-over-year.

Our net non-operating expense for the fourth quarter of 2009 was $10.1 million. That was a decrease of $1.6 million over the fourth quarter of ’08. Our interest expense was down over $3 million, primarily related to the fact that we had significantly fewer outstanding convertible notes in the fourth quarter of 2009.

And that reduction in interest expense was offset by significantly reduced interest income, both because rates are down on our invested amounts and also because in the prior year we had auction rate securities on our balance sheet that we were earning interest income on.

So all the above combined to make us record net income of $5.6 million in the fourth quarter of ’09. And that was up over 150% year-over-year over a net income of $2.2 million in the fourth quarter of ’08, excluding special charges.

Turning to the balance sheet. We ended the quarter with over $91 million of unrestricted cash and cash equivalents. Cash provided by operating activities in the fourth quarter was $21.7 million, very strong quarter on a cash flow basis.

I do think in the first quarter of 2010 our cash flow from operating activities will be down both because seasonally it is usually down because we have a number of items, primarily insurance expense, that we pay early in the year and we build up a prepaid amount that reverse out throughout the year.

But also I think our cash flow will be down a little bit in the first quarter because we had been very carefully managing our accounts payable over the last couple of quarters as we built up and maintained the strong liquidity balance that we have today. Now that we had the balance, I think we will probably relax our tightness on accounts payable and go back to sort of normal levels on our payment terms.

Cash used in investing activities in the fourth quarter of ’09 was approximately $100,000. We had about $1.4 million of cash capital expenditures that was offset by $1.3 million of proceeds related to the exercise of one of our options on our auction rate securities.

We had an auction rate security where the issuer completed a tender offer and we tendered our auction rate securities as part of that and did receive some cash proceeds from that. And then we used a little over $11 million of cash in financing activities, primarily all related to principal payments on our aircraft debt.

And then, on our liquidity today, here in the first quarter we did, as we announced earlier this week, way paid off the remainder of our 3.25% convertible notes on Tuesday of this week, on February 16th.

All but a very immaterial number of the notes were put to us by the holders of the notes and so they are substantially now paid off. And after repayment our cash balance is very strong. We currently have over $60 million of unrestricted cash and cash equivalents. Included in that balance is $10 million that we borrowed from a local bank called Independent Bank.

This was a low cost credit facility that we put in place in January that will just help us provide that extra liquidity cushion until we receive our tax refund later on in the quarter. We did file our 2009 tax return in January and we do expect to receive approximately $38 million tax refund before the end of the quarter.

We are subject to the whims of the IRS at this point, but we do believe, based on the timing of when we filed our return, that it is very likely we’ll have that refund before the end of March.

And since it is the beginning of 2010 I thought I'd touch a little bit on our operating plan and our planned capacity for 2010 for you. And I will caution that this is our plan, this does not take into account the severe weather that we've had in January and February and I do believe that our first quarter will be lower in terms of capacity, than our original plan.

But essentially, what we are expecting for 2010 is no changes in the fleet at our regional jet subsidiary. And with our turboprop subsidiary we currently have four Saabs that are not flying today because of the expected slot swap in LaGuardia that US Airways and Delta had previously announced.

We had removed that capacity in early January, because we had at that time had expected the slot swap to go through. At this point it doesn’t look like that slot swap is going to go through and we’re back talking with US Airways about potentially adding some of those markets back in the summer.

And then on the Q400 side, we do plan to take delivery of eight Q400s in the August through December timeframe. Seven of them will be put into service in September through December.

So based on those changes in our fleet, we expect Pinnacle’s full year capacity to be essentially flat year-over-year. We don’t expect any significant changes in block hours or departures.

And at Colgan we expect on a full year basis our block hours to be essentially flat to maybe down 2%. That’s based on, in the first and the second quarter, we think our block hours will be down something like 6% to 8% primarily because of reduced Saab pro-rate flying.

And then in the third quarter, our flying will be back consistent with 2009, because we do expect to have those Saab aircraft back in service by then. And then in the fourth quarter, we’ll be up 4% to 6% because of the addition of the Q400s under our contract with Continental.

And one final note, again back to the first quarter of 2010. As I mentioned earlier, we have been significantly affected by the severe winter weather. Almost all of our operations have had some kind of impact where we've had very significant cancellation days throughout January and February and we do think that will affect our bottom line.

We have planned to have reduced revenue on our pro-rata operations because of the reduction at LaGuardia. But with the weather in the northeast, our pro-rate revenue in January and February we think, will be down even more than what we had originally planned, pretty significantly.

And then also, in our CRJ-200 contract with Delta, we have performance metrics that are calculated over six month periods. Those metrics are all in test, so they include the affect of weather, cancellation and delays or ATC cancellations and delays.

And we have to see how the full six months turn out and we have to see how March turns out. But that’s something we’ll look at very closely when we get to March 31st, is looking to see if we’ll be below any of those thresholds where we incur a performance penalty.

So those things could affect us and based on those trends, we do think it will be difficult to exceed last year’s first quarter net income. Last year we recorded $2.7 million of net income in the first quarter. I do think though, that this is a temporary trend. It is primarily weather related and we believe our margins will expand again in the second and third quarters and be consistent with 2009.

With that I’ll turn it back to Phil for some closing remarks.

Philip Trenary

Thanks Peter and it’s important that we recognize the great work that Peter and our folks did in addressing the financial side of it, that’s very evident but also it's important to recognize that our people in operations did an outstanding job to help the line on cost turned in, great performance, found some new sources of revenue. So truly was a team effort to make this triumph the way it did, and so a lot of progress year-over-year.

One of the questions I'm sure will come up is where are with ALPA on negotiations with the Pinnacle pilots. Things maybe moving again by that there’s a meeting tomorrow with the National Mediation Board with our pilots. We anticipate that meeting will go well. If so the next step would be the NMB would have meetings with us, and set the groundwork for negotiations to proceed.

So again I'm not going to put any dates on it, I have been completely unsuccessful in determining when that’s going to end, but it does seem like the timing is right for things to start moving again.

Along the same line, it's very important that we thank our union leadership for the willingness to collaborate on safety programs. Several years ago Pinnacle made a commitment to be a leader in safety and working with our union, Pinnacle became the only regional to have, I'd call the four corner stones of a overall safety program, the ASAP, FOQA, LOSA and IEP. If anyone wants to get into what the acronyms mean we can do that. But the bottom line is Pinnacle has done a very good job in establishing these safety programs, what takes to be a leader in safety.

When we purchased Colgan, we made the same commitment and they're well down on the road as well, and their unions have been active with us in that as well.

Last week mark the one-year anniversary of the 347 accident. We want the families of all those lost know that our cross and prayers remain with them and all those lost will never be forgotten.

On February 2nd, the NTSB hearing did verify that our pilots were trained in accordance that means to recognize best practices and the recommendations coming out of that hearing will be helpful to the entire industry.

It's very important for the family members, our own family members at Colgan and Pinnacle, our shareholders to know that we are committed doing everything we can to ensure that another accident like this never happens in our industry again.

One of things up here to mention briefly is our Delta disputes you may remember we’ve had some of those outstanding for very long time, we are actively negotiating with Delta to resolve these main disputes and are making some progress.

We did reach a tentative agreement that resolved the ground handling issue, part of that Delta did agree to pay for the painting on delivery of our aircraft.

Peter also mentioned the first quarter challenges this year relative to the weather and it is also a challenge and we had some days were we had to shut down for a day at a time due to the weather. But it’s a real tribute to the quality of an operation and how fast to recover from those and our folks have did an outstanding job.

We’ve shut the airline down or the weather would shut us down and they bring right back up again, so they are doing a great job and we do have the infrastructure and the right people in place to make sure we perform as well as we can.

Pinnacle remains well positioned for the future. We all know about the contract expirations are coming up and one of the things that is a tremendous benefit for all of us is we are not under any pressure to enter into deals that don’t make sense for our shareholders.

The contracts that are coming up over the next few years will present opportunities for us. We expect to aggressively bid those, but only to the extent that these contracts be a crave to our shareholders.

We believe we’ll continue to fly the, I would say, the right aircraft in the right way. We have a route map, just like everyone else, in our presentations, but one of things you’ll notice is different on ours, and we’ve talked a lot about the performance characteristics and the advantages of the Q400, the CRJ-900 in addition to being a very economic aircraft with low cost and low fuel burn, the capabilities that Pinnacle brings to it is long range operations.

If you look at our route map, we have some routes stretching down into the Caribbean like St. Croix and to Belize, routes up to 1700 miles. We are the only regional carrier that has that capability at this time. So, we offer our partners a lot of capability with this aircraft. We do believe that there will be pressure on fuel cost. We’ll probably face some sort of energy tax in the future.

So with the performance and the economics of the Q400 and the CRJ-900s, again I need to reiterate, we feel we are in very good shape to take advantage of that going forward.

So with that, I’d like to open it for questions.

Question-and-Answer Session


(Operator Instructions). Your first question comes from line of Mike Widmer - Bank of America.

Mike Widmer -- Bank of America

Phil, on your point that you talked about the opportunities looking out with contracts coming up for expiration and you said, look we're going to bid aggressively but we're going to do, what we're going to do is, we're not going to do something that is negative for the shareholders.

That Being said, what are your thoughts on this recent ExpressJet deal with United where it looks like it's United's getting 15% of ExpressJet and was that business that you actually take a look at?

Philip Trenary

No, we did not take a look at that business. And we only know, we know what you know as far as how the contracts looks like. It does appear to give United a lot of flexibility. And so, flexibility I don't think any carrier would have unless that airplane's sitting around not doing anything. So we didn't have that advantage or disadvantage as you will.

Mike Widmer -- Bank of America

My next question, this is to Peter. The converts that you guys took out, I guess that was roughly $31 million of phase or $31 million of par, was it at a discount and what was that discount? And then what is left outstanding? And I realize it's a very small piece but just for modelling purposes.

Peter Hunt

This was the put date so they were put at par. So there was no discount. They were pain in full at par. And they're essentially all gone. All but 25,000 or so of the bonds were put to us and the remainder, we'll figure out what to do. We'll probably just call them or something like that. So they're essentially gone and done.

Mike Widmer -- Bank of America

Just my last question, Peter, you are taking airplanes this year. When we think about your free cash flow, and you may have said this and I don't think I heard it, the tax refund that you're anticipating, hopefully before the quarter's out, did you give the amount on that?

Peter Hunt

Yes, it's $38 million.

Mike Widmer - Bank of America

Okay, so $38 million. And then if we look at your CapEx for the year, for 2010, what’s the CapEx forecast?

Peter Hunt

Well because we have the financing commitment with EDC, Export Development Canada when the aircraft deliver, it shows up basically the net on financed amount is all that shows up in our CapEx, on our cash flow statement because EDC pays Bombardier directly.

And so when you look at that, the requirement on each of these aircraft as they deliver is approximately $3 million to $3.5 million that is funded out of our pocket. And so you'll see that for those 8 aircraft in August through December.

On top of that, we will acquire approximately $5 million or $7 million of additional inventory to support the new fleet throughout the year, you'll see that. And then just on an ongoing basis, on our existing fleet there’s another $4 million or $5 million of CapEx that we would have in 2010.

Mike Widmer - Bank of America

Okay, and then if I think about what’s your debt pay down for 2010, what principal payments?

Peter Hunt

It will stay – we have that in our 10-K, which we'll be filing next week but it will be pretty consistent with 2009, which is roughly $9 million or $10 million a quarter.

Mike Widmer - Bank of America

Okay so $9 million or $10 million, so if I think about it before you down debt, if you look at that refund and we look at your aircraft piece and your other CapEx they almost seem to net each other out maybe it's a little bit above that. And it looks you're doing something on an operating basis, it's roughly maybe $20 million a quarter, first quarter it's going to be down a bit though.

We maybe looking at cash, free cash, I don’t know somewhere between $20 million and $45 million I guess depending on how you calculate. I mean is that’s kind of a fair number.

Peter Hunt

I will say that, I think you are correct in that and we essentially have that refund year marked to support the fleet growth. That will take care of that and I do believe that the cash flow from existing operations excluding that tax refund will be more than adequate to pay our on going obligation in terms of getting to free cash flow.

Mike Widmer -- Bank of America

So the bottom line is that you anticipate that you will be free cash flow positive for 2010?

Peter Hunt

Yes, if you are looking at from a net basis in that, the net un-financed portion of the aircraft, yes.

Mike Widmer -- Bank of America

Okay, now that’s paid down it looks like you are willing to clear, so very good. Thanks.


Your next question comes from the line of Garrett Wilson - Sirius Advisors.

Garrett Wilson - Sirius Advisors

So we notice that the PPI was up 4.7% year-over-year in December. How much might this add to your revenue in 2010?

Peter Hunt

Well actually the metric we use is the, so the raw unadjusted PPI not the seasonally adjusted one, so was actually up 4.4% year-over-year. And it only affects the non pass-through components of revenue on our CRJ200 contract.

Every point is worth two or three million or so of additional revenue to us but I will caution that doesn’t all just drop to the bottom line because we do have inflation in our cost.

Our labor cost, we have annual step increases, people move up the seniority scale, so our labor cost go up year-over-year, our maintenance cost go up as well and so we do think there will be some cost that offset some of that additional revenue that we are going to have.

Garrett Wilson - Sirius Advisors

Based on the new Q400s you are buying, do you anticipate getting a tax refund in 2011?

Philip Trenary

At this point no, and that’s because under current tax rules, current IRS rules you can only carry back current year losses for two years. And we will now have done that. We will have carried back losses for ’08 and ’09, and losses I mean tax losses. We don’t have book losses, just tax because of the extra depreciation on the aircraft.

So, we’ll have carried those depreciation charges back to ’07. So when we get to 2010, there is no taxable income in ’08 and ’09 to carry back to. So those tax losses for 2010 will carry it forward. We still will not be a tax payer, I don’t think we’ll be a tax payer for several years, but we won’t generate these large refunds anymore unless for some reason tax law were to change and we could carry back longer than a two year period.

Garrett Wilson - Sirius Advisors

Now the $60 million in cash, you said you had as of February 16, I anticipate that includes your usual inter-month draw down, though you weren’t significantly in cash flow negative.

Philip Trenary

We are high on the 15th and 30th of every month, because our largest contract, the CRJ-200 contract, we receive payments on the 15th and 30th. So this is a higher point within the month, within our monthly cycle. But between now and the 30th, cash won’t go down anymore than let’s say $10 million or $15 million to our low point before we are repayed again.

So we feel pretty good about where we are with liquidity. We are very comfortable. Until we receive our tax refund our liquidity is pretty strong.

Garrett Wilson - Sirius Advisors

The last question I have is, have any of the flight through 347 cases been settled yet?

Unidentified Company Representative

No we don't believe any have been settled.


Your next question comes from (Arthur Calatino) - John Hancock Advisers.

(Arthur Calatino) - John Hancock Advisers

Two questions, one on the financial side. On the refund and I know you said what you're going to pay, and I know you took a $10 million, I think it was $10 million loan from a local bank. What's the amortization of that? Is that thing going to go away with this $38 million you're receiving or is that -?

Peter Hunt

Yes, that is correct Arthur. It will, it is tied to the tax refund. So it's just a short-term facility, gives us that extra cushion until we get the refund. So the refund essentially will just be in that $28 million increase for us.

(Arthur Calatino) - John Hancock Advisers

The second question, Philip, you were making a comment, and I don't have the map in front of me. But it was interesting when you're talking about the long routes that the regional operations can do versus flying up what other regionals can do.

If you could just expand on a little bit more of your vision. Where you'd like to maybe see the company when you made that statement? Are you going to try to see if you can do more close we call the Caribbean type flying and it maybe even Canada type stuff with your operations, with new guys or with the existing guys you already have?

Philip Trenary

Yeah, we are doing some Canada now and the reason I bring that up, and it really came from staring at the route map that we're using in this presentation, everyone has one, you tend to gloss right over it. It really highlights, what we offer with both the Q400 and CRJ-900 is a lot of flexibility for our partners.

The Q400 does very well and the constrained area in the Northeast, we'll operate it now. We think going forward you'll see more operations that are longer range for that aircraft.

On the CRJ900, we primarily bought it with economics. If you consider the acquisition cost along with operating cost, it's actually the best aircraft you can operate. By taking this – it's actually an op spec the FAA developed, to be able to do extended over water.

It just provides opportunity for us to go to our partners, whether it'd be a current partner or a future partner and say, look we can take you on you anywhere from short range to very long range for regional aircraft and a lot of the flying you see up there is being done with narrow body aircraft because they need the range not because it makes sense from a capacity standpoint.

So it's just the point being we offer a lot of flexibility, whether it'd be high frequency short range, or actually stressing out on longer thin routes. We can do either one.

(Arthur Calatino) - John Hancock Advisers

So if I'm running a base in, I don’t know, the Southeastern part of the country and I'm doing Caribbean flying with MD-80s, are you suggesting or saying that if you run 5 flights a day, maybe 2 or 3 of the flights during certain periods of the year, it would be much better to go with the aircraft that you offer the client?

Philip Trenary

Exactly, you hit the nail in the head.

(Arthur Calatino) - John Hancock Advisers

And do the clients understand that or is there just issues of scope in other contracts which prohibit that from happening with you now?

Philip Trenary

It's our job to make sure they understand because frankly some of those things that they haven't thought about before now, because it's assumed the aircraft couldn't do that. And since we've introduced it, I think more and more will be looking at it.

(Arthur Calatino) - John Hancock Advisers

Okay, but I was speaking about contracts on the other side, with your client, sometimes they could be prohibited from – if they'd understand it, but as things maybe be opened up or change with contracts, maybe the opportunity could come quicker than you think?

Philip Trenary

Only to the extent that they receive additional scope relief, one other things that will come up with the contract expirations we are talking about over the next few years, I think everyone understands that there will be more of a demand for 76-seat aircraft, less demand for 50-seat aircraft.

And as you look those replacements, one of the things we are looking at is if we are going to use this aircraft over and above the traditional 76-seat row.

(Arthur Calatino) - John Hancock Advisers

If you had, I mean I don’t like naming individual clients but if you have like a large carrier that for whatever reason didn’t have the ability to coach here for now.

Does, when you do regional operations would those be as difficult as code share, so lets say you were doing something, some southern state to Mexico. You still need the full code share capability of that other guy, would that be, is that phrased accurately?

Philip Trenary

Yes, you would have to have the code.

(Arthur Calatino) - John Hancock Advisers

You would have to have the code and you would have the IT, okay good.

Philip Trenary

This way, we would have to have the code.

(Arthur Calatino) - John Hancock Advisers

Yes, but you would need the – both IT systems talking to each other and being able to, yes I understand.


(Operator Instruction) Your next question comes from Duane Pfennigwerth – Raymond James.

Duane Pfennigwerth – Raymond James

Peter, just to check what you said in terms of margins in 2010, down in the first quarter and then approaching last year for the rest of the year, does that imply we should think about sort of flattish pre tax margins in 2010 on flat block hours.

Peter Hunt

Yes, I think that’s probably a good way to look at it. When we look out through the rest of the year, as we know we have carried, we do have some revenue and rate increases but we do also expect a new pilot deal at Pinnacle, new pilot deal at Colgan. So there will be some increases on the cost side as well.

So we do think margins will be fairly consistent when we get out into the second, third and fourth quarters. One other pressure point we’ll have at Colgan is there will be some additional training costs in the second and third quarter as we ramp up for the addition of the Q400s that are coming at the end of the year.

So there will be a little bit of pressure there as well. But I think on the whole we do believe we’ll kind of have pretty consistent margins once we get past this first quarter.

Duane Pfennigwerth – Raymond James

On the aircraft delivery, is it fair to say that you have accelerated three, so it looks like you are taking eight this year, and I think you are thinking about five previously?

Peter Hunt

Well I think we’d always plan to put seven into service. So, I don’t think there is an acceleration change. I may have given you different data or something before, but we had expected to have seven inservice with Continental this year and then eight going into service through April of 2011.

Duane Pfennigwerth – Raymond James

So net one in 2011?

Peter Hunt

Yeah, that will be eight total. So, it’s 15 that are on order. So there will be seven going into service this year and eight going into service in 2011. And the schedule we've worked out with Continental is, they go into service the month after they deliver. So we’ll have, that’s why there is eight delivering this year, but only seven going into service.

Duane Pfennigwerth – Raymond James

I think way back when you started this business, the Continental business, you had talked about a sort of 7% to 9% pretax margin. Obviously, we have visibility into out margins for Colgan as a whole. But can you speak to, if you've been able to hit that margin and how we should think about the margin of that Continental business going forward?

Peter Hunt

Well, I think when we look both at the Continental business and the Delta CRJ-900 business, our target and what we expected when we put this business together was to get to those levels, 7% and 9%.

We are closer on the Qs than we are on the 900s to hitting that margin. But we're not there on either of those contracts yet for a number of reasons and the other thing that pulls Colgan's average margin down is the pro-rate flying.

The pro-rate flying still makes a lot of sense to us. It covers lot of overhead costs that wouldn't go away if the flying went away and on a full year basis in '09, we believe it was profitable but it is lower margin business. So it pulls the average margin at Colgan down.

Duane Pfennigwerth – Raymond James

Just lastly, where do you expect cash to be at the end of the first quarter assuming you get your refund and then at the end of the year?

Peter Hunt

Well, I'm not ready to comment on the end of the year on cash, but at the end of the first quarter I think probably, it won't be significantly different from where it is now expect for the addition of the refund. So that's kind of where I think it will be at the end of the first quarter.


That concludes the Q&A session. I'd like to turn the callback over to Philip Trenary for closing remarks.

Philip Trenary

Thank you. And again thanks for you interest and calling in. It's good to be back in a year where we're growing and for recognizing the achievements of 2009. Thank you very much.


Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a great day.

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