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November 28, 2009.

As the price of fuel settled down in 2009 compared to the outrageous prices in 2008, Pinnacle and the other regional airlines have fared pretty well. 

For the nine months ending September 30, 2009, Pinnacle reported net income of $36.2 million dollars and Earnings Per Share of 2.01.  This compares to a $5.4 million dollar loss for the same period in 2008.

For the nine months ending September 30, 2009 Pinnacle has operating income as a percentage of operating revenue in 2009 of 9.9% vs. 4.5% in 2008. 

The major difference relates to the cost of fuel which is $15.9 million dollars spent so far in 2009 vs. $41.6 million dollars for the same period in 2008.  

Pinnacle also used 2009 to shore up their balance sheet in preparation for the repurchase of the outstanding senior notes scheduled for the 1st quarter of 2010.  The company has already repurchased $78 million dollars (at par) of these notes in 2009. There are currently $31 million dollars (at par) still outstanding.

Pinnacle has also increased their cash on hand through earnings as well as net proceeds utilizing a CIT credit facility of $27 million dollars.   Pinnacle sold off their ARS portfolio and received options to repurchase that portfolio at anytime over the next three years.   

Management has done an outstanding job with the balance sheet and they will have no trouble with the outstanding senior notes.  

This company continues to make money and should do so for the next 3 years as long as the price of fuel remains steady and reasonable. 

Pinnacle has not yet announced the number of pilots they will hire in 2010.  However they have started hiring instructors and we expect up to 120 new pilots will be hired during the first quarter of 2010.

Other regional airlines have indicated they will be hiring soon.  Some have already started.  

We expect the regional airlines will begin to stockpile low time pilots in 2010 and 2011 in anticipation of the ATP law that could take effect as early as 2013 which will require all pilots flying passengers to have an ATP rating which currently requires 1500 flight hours.  

We do not expect Pinnacle or any of the regional airlines to actively recruit and employ higher time pilots going forward if the ATP law goes into effect.  The reason for this is because the major airlines will be recruiting just about every qualified ATP rated pilot from the regional airlines in 2012 and 2013 due to the work rule changes as well as the age 65 pilots that will start retiring in 2013. 

We feel it is possible there could be a 100% + turnover of pilots at the regional airlines, in 2012 and 2013,  if the pilot recruitment is handled improperly in 2010 and 2011. 

One defensive hiring method we believe the regional airlines will widely utilize is the hiring of low time pilots in 2010 and 2011.  By the time the ATP law would go into effect, the low time pilots will have their ATP and 1500 hours.  However they would not have enough hours to be attractive to the majors at that time.

This defensive hiring method would allow the regional airlines, like Pinnacle, to operate through 2013 and 2014 without a tremendous loss of pilots advancing to the majors. However we expect that 2015 and beyond to be problematic for the regional airlines due the the lack of ATP rated pilots that will be available for employment. 

It is yet to be determined how new pilots are going to be able to obtain 1500 flight hours and an ATP rating in sufficient quantities to fill the positions available in 2013 and beyond.  

We actually have this information.  Keep in mind that about 180 students were enrolled at Jet University since it began in May 2006.

In 2007, no "zero to hero pilots" from Jet University were hired by Pinnacle.  Pinnacle did hire Jet University Students that came in to Jet University that already had their multi-commercial ratings and then took the three month CRJ First Officer Course.

In 2007, 53 Jet University students were offered training classes at Pinnacle.

Of those 53, 42 actually accepted the Pinnacle training classes.

Of those 42 that accepted the Pinnacle training classes, 33 passed the Pinnacle training class and were hired at Pinnacle.

For 2008,

Two, "zero to hero pilots" from Jet University were offered a training class at Pinnacle.

Nineteen other Jet University Students (that already had their multi-commercial ratings) were offered a training class at Pinnacle.

That means that 21 Jet University Students were offered a training class at Pinnacle.

Of those 21 Students offered the class, 18 accepted the offer.

Of those 18 that accepted the offer, 14 passed the Pinnacle training class and were hired at Pinnacle.

So based upon this information, it appears that a total of 51 Jet University Students were actually hired by Pinnacle from the beginning of Jet University until now.

No Jet University student has been hired since April, 2008.

As we reported on February 03, 2009, Pinnacle will not hire new pilots in 2009.  The letter came this week from Pinnacle confirming this.  Here is the letter:

02/03/09

We have some news that you probably will not want to hear.  We have reliable information that Pinnacle will not be hiring any new pilots in 2009.  There simply are not any pilot or first officer positions at Pinnacle this year.  They may have to furlough First Officers and downgrade Captains to First Officers depending upon how the economy works out. It may also be difficult to get hired by Pinnacle, as a first officer, in 2010 and beyond.

We do have three Jet University alumni at Pinnacle working in non pilot jobs. 

One is a flight attendant that originally flew with Pinnacle, took a leave of absence, came to Jet University and completed the program, went back to Pinnacle and is still a flight attendant because there simply are not any pilot jobs available. 

There are two other Jet University graduates working in Pinnacle crew scheduling that took those positions in order to be closer to being employed as first officers when Pinnacle started hiring pilots again. 

There is also a rumor going around that Pinnacle may start their own flight training school, later this year, utilizing the full motion CRJ simulators in Memphis.  The cost of the full motion CRJ course is expected to be in the ten thousand dollar ($10,000) range.

We would expect that if Pinnacle does start a flight training school, that the Pinnacle students would have first hiring priority over students from Jet University or other flight schools.

Pinnacle has some heavy debt payments coming up in 2010 and they are preparing their balance sheets for those debt payments. 

One of Pinnacles major issues is that they are so heavy with CRJ-200's.  At the present time they have 128 of these aircraft. (Down from 155)  The problem with these CRJ-200's is that they are not fuel efficient and have the highest fuel burn per passenger seat mile in the industry. 

American Eagle and Express Jet (Continental Express) have already parked many of their ERJ's (in Arizona and in Louisiana) because of the fuel burn issue with those aircraft.  Here are a couple photos of these planes parked in the Arizona desert.  You can see the American and Continental logos on the ERJ's parked in Kingman, Arizona. 

The CRJ-700 and CRJ-900 are much more fuel efficient per passenger seat mile.  

Pinnacle will need to transition out of their CRJ-200's and into the CRJ-700 and CRJ-900 in order to remain competitive and fuel efficient.   The CRJ-200's will most likely sent to overseas operators since no domestic airline will pick them up.  As these transitions are make, there is a substantial cost to Pinnacle (or other domestic CRJ-200 operator) for each aircraft, removed from the fleet, that must be written down in value.  This will amount to millions of dollars per CRJ-200 aircraft removed from permanent domestic service.