PNCL, MESA Follow Others in Earnings

Pinnacle and Mesa followed Republic Airways Holdings and SkyWest in posting quarterly profits again outpacing their major carrier counterparts. Mesa reported its results this morning while Pinnacle held its conference call on Friday.

Pinnacle was able to maintain its 10% margin, a day after the long-awaited agreement with the Air Line Pilots Association was announced. The results included second quarter 2009 net income of $6.0 million and fully diluted earnings per share of $0.33. Excluding certain nonrecurring items, the company achieved net income and EPS of $7.3 million and $0.41, respectively, in the second quarter of 2009. This represents increases of 107% and 105%, respectively, over net income of $3.5 million and EPS of $0.20 in the second quarter of 2008, excluding nonrecurring items. Excluding nonrecurring items, the company reported consolidated operating income of $23.7 million in the second quarter of 2009, an increase of 57% over consolidated operating income of $15.1 million in the second quarter of 2008, excluding nonrecurring items.

Mesa’s third quarter income from continuing operations yielded $1.7 million on operating revenues of $232.6 million. Total operating revenues for the third quarter of 2009 decreased $121.3 million, or 34.3% primarily resulting from a year-over-year decrease in capacity and lower fuel revenue. The income of $1.7 million, or $0.01 per share on a diluted basis, compares to income from continuing operations of $1.8 million, or $0.07 per diluted share for the same period of fiscal 2008. Pro forma net income for the quarter was $2.3 million or $0.02 per diluted share compared to a net loss of $2.5 million or $0.09 per diluted share for the same period of fiscal 2008. Pro forma net income for the quarter includes adjustments including: $1.4 million for income from equity method investments, $1.2 million for a maintenance reserve and $0.9 million for costs associated with our Chinese joint venture.

Pinnacle
The Pinnacle results, which included a $19 million turnaround from the year-ago period, won the praise of at least one analyst on last Friday’s conference call “Congratulations on a very good quarter,” said Sirius Advisors’ Rohan Rangaraj, “I'd like to give you a tip of the hat on pretty much everything you've talked about the last couple of years from pro rate, finances, to settling with the IRS, adding the Q400 business when really nobody thought you'd be able to do it, working with ALPA and getting these term loans. You guys deserve a lot of credit for that. I'm really impressed. The shareholders are very pleased to see that.”

"Despite a challenging year for our industry, I am pleased to report solid financial performance for the second quarter of 2009 at both of our operating subsidiaries," said Phil Trenary, the Company's President and Chief Executive Officer. "Our investments in new aircraft and improvements to our pro-rate operations are beginning to produce positive results for all of our stakeholders."

On August 4, subsidiary Pinnacle Airlines, Inc. and the Air Line Pilots Association reached a tentative agreement to amend the collective bargaining agreement. Pinnacle had been involved in active negotiations with ALPA since April 2005, when the collective bargaining agreement between the two parties became amendable. The terms of the tentative agreement must be ratified by Pinnacle's pilots before it becomes final.

"Successfully completing a new pilot agreement has been a very important goal for Pinnacle," said Phil Trenary. "I am proud of the way ALPA and our team worked together to reach this new tentative agreement for our pilots."

In the past, pilot rates were 6% below market rates, according to Hunt, who indicated the new contract puts pilots at industry average. The agreement also calls for a $10 million signing bonus if ratified, half of which would be paid this year and half in the second quarter of 2010.

While facing those challenges in the past two years and growing with the comeback of Northwest from bankruptcy as well as the promise of a combined Delta/Northwest, the company faces additional challenges especially surrounding liquidity as it faces a February 2010 bond obligation. Having reached an agreement with its pilot corps, it must also balance the increased wages and benefits with cost cutting that will maintain its margins, which, according to CFO Peter Hunt are targeted higher than the 10%.

Trenary attributed the healthy margin to the cost cutting done in the wake of flat revenues going into 2009. Trenary said the improving the financial performance of Colgan’s pro-rate business was top priority having already achieved results.

The cost cutting must continue if the company is to offset the pilot contract. “We will need to find some cost savings to help pay for some of this,” Hunt added. “In addition, when we look at 2010, it's our hope that instead of getting zero inflation increase on our contract like we got this year, that our rates actually will increase, that there will be some inflationary increase when we look at December versus December last year. So that will also offset some of the increase we'll absorb on the new pilot contract.”

The company ended the quarter with just over $94 million of unrestricted cash and cash equivalents, said Hunt, adding that it had a very strong quarter in operating cash flow. “We received the $32.8 million tax refund,” he said, “That was received on April 1, and in addition, we had about $23.5 million of cash flow for core operations.” However, he pointed out that Q1 it was $6 million and the normal to be expected is about $15 million, with the swings largely owing to the timing of payments from its partners.

Pinnacle’s non-recurring items related to the remainder of its Beech 1900 fleet which is down to two aircraft, one leased and the other owned and on the market as well as its auction rate securities on which it is close to a deal resulting in a $1 million adjustment in the quarter, offset by a $700,000 gain on some of its ARS redeemed in the quarter.

“So the net of that is about a $300,000 charge that's in our net non op, and again, excluding those two items as I mentioned, our total net income was $7.3 million for the quarter,” said CFO Peter Hunt. .

Subsidiary Pinnacle Airlines, flew 1.55 billion ASM's during the quarter which is a decrease of 5% over the ASM's in the second quarter of '08. Block hours were down 5% year over year to 106,475 and our departures were actually up 1% at 68,826 departures. Stage length was down as a result of that to about 427 miles, and this is the first quarter where we're really starting to see a year over year decline in utilization, while utilization was down about 8% at Pinnacle versus the second quarter of '08. Part of that is based on the lower stage length and longer ground times as well as the pressure on the entire industry to tailore operations to partner needs, said Hunt.

Colgan subsidiary flew 272.1 million ASM's which was up just slightly year over year, up 1% and Colgan flew 34,233 block hours which was actually down 15% year over year. Colgan's departures were also down 13% to 27,684 and the declines in the block hours and departures primarily relate to the changes we made to Colgan's pro-rate operations last fall where we removed quite a bit of capacity out of that part of our system.

During the second quarter, the Company recorded a nonrecurring charge of $1.5 million ($1.0 million net of income taxes, or $0.06 per share) related to the retirement of its Beech 1900 fleet. In addition, the Company recorded a net loss of $0.3 million ($0.3 million net of income taxes, or $0.02 per share) related to its portfolio of auction rate securities. The Company's net income and EPS for the second quarter of 2008 reported above also excludes certain nonrecurring items, which are listed in the attached table "Reconciliation of Non-GAAP Disclosures."

For the six months ended June 30, 2009, the Company reported net income of $24.8 million and EPS of $1.38. In addition to the nonrecurring items described above, the Company's year-to-date financial results include a number of previously announced nonrecurring items that increased net income by $14.4 million. These nonrecurring items are listed in the attached table "Reconciliation of Non-GAAP Disclosures." Excluding these nonrecurring items, the Company achieved net income of $10.4 million for the first six months of 2009, an increase of 118% over net income of $4.8 million in the first half of 2008, excluding nonrecurring items. Year-to-date 2009 EPS excluding these nonrecurring items was $0.58, an increase of 115% over EPS of $0.27 for the first half of 2008, excluding nonrecurring items.

PNCL Highlights
On July 30, the company completed a $25 million, three-year term loan financing with C.I.T. Leasing secured by its pool of spare rotable and expendable aircraft parts. The interest rate for this financing is a variable rate indexed to LIBOR and was 8.5% at the inception of the loan. This financing will enhance the company's ability to repay its $109 million 3.25% senior convertible notes in the event that holders of the Notes tender them to the Company in February 2010.

The company recorded consolidated operating revenue during the second quarter of 2009 of $211.3 million, a decrease of $9.9 million, or 4%, over the same period in 2008. The decrease is primarily related to the reduction in our pro-rate operations and the decrease in Pinnacle's CRJ-200 capacity noted above. These decreases are offset by an increase of $8.6 million and $6.1 million in revenue earned under our CRJ-900 DCA and Continental CPA.

Consolidated operating income excluding nonrecurring items was $23.7 million for the second quarter of 2009. Consolidated operating income for the second quarter of 2008 was approximately $15.1 million, excluding nonrecurring items. Pinnacle reported second quarter 2009 operating income and an operating margin of $17.0 million and 11.0%, an increase of $1.6 million and 1.1 points, respectively, from the second quarter of 2008. This increase is primarily related to a reduction of certain airport and ground handling expenses totaling $1.3 million resulting from a reversal of accrued amounts that Pinnacle no longer expects to pay. This one-time reduction of operating expenses increased net income by $0.8 million and EPS by $0.05. Additionally, increases in Pinnacle's operating income related to its new CRJ-900 operations were offset by unit cost increases related to salaries, wages and benefits and maintenance. Pinnacle continues to experience increased maintenance costs related to its CRJ-200 fleet, and a decrease in labor productivity associated with reduced attrition of pilots and flight attendants.

Excluding non-recurring items, Colgan reported operating income and an operating margin of $6.7 million and 11.8%, an increase of $7.0 million and 12.3 points, respectively, from the second quarter of 2008, excluding nonrecurring items. The addition of Colgan's Q400 operations under its capacity purchase agreement with Continental Airlines contributed to the improvement in operating income during 2009. In addition, Colgan's fuel costs within its pro-rate operations decreased dramatically year-over-year. Colgan's fuel cost per gallon during the second quarter of 2009 was $1.90, down 50% as compared to 2008, improving operating income by approximately $5.2 million. Colgan also benefited from changes to its pro-rate operations complemented by the company during 2008. These changes included the elimination of certain unprofitable markets, the retirement of six Saab and five Beech aircraft, and the restructuring of many of its Essential Air Service markets for more profitable operations. These improvements were offset by a three percent decrease in revenue per available seat mile.

Net non-operating expense was $12.5 million for the three months ended June 30, 2009, including the $0.3 million net investment loss on our ARS noted above. Net nonoperating expense for the same period in 2008 was $18.0 million, inclusive of an $8.7 million impairment charge related to our ARS portfolio. Interest expense for the second quarter was $12.9 million, an increase of $1.7 million from the second quarter of 2009. The increase is primarily attributable to an increase in interest expense associated with the Company's owned fleet of CRJ-900 and Q400 aircraft that were acquired throughout 2008. Interest expense includes $2.5 million of additional expense for both the second quarter of 2009 and 2008 related to the company's previously disclosed adoption of a new accounting standard, which resulted in a change in the Company's accounting for the Notes. Prior year amounts have been restated to reflect the new accounting standard. The effect of this change was a non-cash reduction to EPS of $0.09 and $0.08 for the second quarter of 2009 and 2008, respectively.

Mesa Highlights
Total Available Seat Miles for the third quarter of fiscal 2009 decreased 10.8% from the third quarter of 2008 on a reduction in aircraft operations to 142 compared to 161 in the year-ago period..

At June 30, 2009, the company had cash, cash equivalents, and marketable securities (including current and noncurrent restricted cash) of $35.0 million (including $14.1 million of restricted cash), compared to $64.9 million (including $13.9 million of restricted cash) at September 30, 2008. The decrease in the cash position is primarily attributed to the timing of certain payments and fluctuations in working capital.

• Delta: On April 1, 2009, we removed six ERJ-145 aircraft from the Delta Connection Agreement. Effective April 1, 2009, the Company operated 22 ERJ-145 aircraft pursuant to its Delta Connection Agreement.
On July 2, 2009, the U.S. Court of Appeals affirmed the preliminary injunction against Delta Air Lines. The decision effectively enjoined Delta from terminating Freedom Airlines' Delta Connection Agreement covering certain ERJ-145 aircraft; the preliminary injunction will remain in place while the case proceeds in the U.S. District Court. With both the U.S. District Court and now the U.S. Court of Appeals finding that Mesa has demonstrated a substantial likelihood of success on its claims, Mesa looks forward to having this matter fully and finally resolved at trial.

• China: In April 2009, the Company completed transactions divesting its indirect interest in the Kunpeng Airlines joint venture. Five aircraft were returned from this joint venture.

• go!: At its third anniversary,. go! has carried over two million passengers and has become a company with robust personality and established values. For the first nine months of fiscal 2009 go! reported operating losses of $4.7 million on operating revenues of $29.9 million compared to operating losses of $22.3 million on operating revenues of $29.0 million for the same period in the prior year.

"While we continue to face significant challenges in the upcoming quarters, we continue to strive to serve the needs of our partners while providing excellent customer service to our passengers," said Mesa Chair and CEO, Jonathan Ornstein. "On behalf of the entire executive staff, I would like to express our gratitude to thank our airline partners, vendors, suppliers, and hardworking employees for their continued dedication and support."