Pinnacle Air Shares Fall After Fatal Crash

Shares of Pinnacle Airlines Corp. (PNCL) fell more than 24%, to trade at $1.78 midday Friday, following the fatal crash near Buffalo, N.Y., of a Bombardier Inc. (BDRBF) Q400 aircraft operated by its Colgan Air Inc. unit on behalf of Continental Airlines Inc. (CAL).

Investigators from the National Transportation Safety Board said Friday they had recovered the 'black box' of recorded flight data. But they said it would take time to determine the cause of the accident, which took the lives of all 49 people on board the plane, and one person on the ground.

Analyst Bob McAdoo at Avondale Partners LLC, said shareholders sold off in a " knee-jerk" reaction to the news. "Typically this can happen after an accident, but it doesn't have a long-term impact," he said.

Airline stocks have suffered lately as investors worry that the economic recession will hurt passenger traffic.

Most U.S. major carriers outsource regional flying to companies like Pinnacle that operate multiple brands and mostly fly in the colors and flight numbers of the national airlines. American Airlines, a unit of AMR Corp. (AMR) owns a regional subsidiary, American Eagle, and Delta Air Lines Inc. (DAL), owns a regional carrier, Comair, but also contracts with outside regional carriers.

Although they don't make contract information public, the big airlines recently have been pressing for more cost-savings from their regional partners. Typically, regional airlines - which serve small markets where big airlines don't fly - pay a fixed price per flight, with the majors picking up the fuel tab. That was particularly painful for large carriers last summer, when fuel prices skyrocketed to record highs. Now, with the recession in full swing, airlines are looking to trim routes that don't make money, including many flights to smaller markets.

Pinnacle, one of the largest U.S. regionals, acquired Colgan in January, 2007, at a time when it was unwinding a long-term relationship with Northwest Airlines Corp., then under bankruptcy protection. Colgan also operates services for the United Express unit of UAL Corp. (UAL), the parent of United Airlines, and for US Airways Inc. (LCC).

Memphis-based Pinnacle, which employs 6,000 people, recently signed a new 10- year deal to operate services for Continental through its Colgan unit.

The deal envisioned Colgan doubling its Q400 aircraft fleet to 30, with deliveries starting next year.

Q400 Turboprop A Winner For Bombardier

While turboprop aircraft lost ground to a new breed of regional jets during the 1990s - partly because of negative passenger perceptions - the segment has made a comeback as fuel prices rose and jets became inefficient on shorter routes.

Bombardier has received nearly 1,000 firm orders for the Q-series aircraft, including 347 for the Q400.

There are more than 100 customers worldwide for the Q400, Bombardier said, including several U.S. airlines. Horizon Air, a unit of Alaska Air Group Inc. ( ALK), plans over time to switch to an all-Q400 fleet. It recently said it would defer some aircraft deliveries due to the weak economy. That was the first deferral for the Q400, according to Bombardier. Porter Airlines, a commuter airline in Canada, already flies a Q400-only fleet.

The Q400 was involved in some previous, less serious, crashes in Japan and Scandinavia several years ago, related to problems with the landing gear.

The insurer for the Colgan aircraft was United States Aircraft Insurance Group, a pool comprised of U.S. property/casualty and reinsurance companies that issue aviation insurance policies, according to a report by the Insurance Insider, an industry newsletter.

The turboprops are a key part of Continental's network from Newark Liberty International Airport, viewed as the airline's prize asset for its significant market share in New York and New Jersey, connecting with international flights.

Continental uses Colgan and the Q400 to feed passengers from smaller airports in the tri-state region. Continental shares recently traded up less than 1%, at $13.20.

-By Doug Cameron, Dow Jones Newswires; 312 750 4135

-Ann Keeton, Dow Jones; 312-750-4120; ann.keeton@dowjones.com

-Monica Gutshi and Lavonne Kuykendall contributed to this report.

(END) Dow Jones Newswires
02-13-09 1332ET
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