Pinnacle Air's Business Model One of the Safest in the Industry

Small Cap Watch List 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 though risks remain, the business model is one of the safest in the airline industry.

PNCL 1-yr chart:

Comments

[Jamaicatty:]

One has to wonder why a regional would be bucking the trend of the last decade and purchasing turboprops rather than jets- could it be operating and acquisitional costs vis a vis the routes they will be plying? The Q 400 is cutting edge tech- full glass cockpit and the vibration from the props is almost allegedly eliminated so it will be interesting how the flying public will greet prop liners again.

2007 Mar 19 11:37 AM

[William Trent_:]

Whether jet or turboprop, I think the trend toward smaller regional point-to-point service is something to watch for. In some ways it will be tough for the regional carriers serving as feeder airlines to break the mold though.

2007 Mar 19 02:15 PM