Pinnacle Acquires Mesaba -- and Can't Wait to Erase the Tarnished Colgan Brand

The long-awaited regional airline consolidation is starting to pick up, with two acquisitions in the last week and another rumored. There has been too much regional capacity and too many operators for some time, so this isn't surprising. Today, I'm focusing on Pinnacle's (PNCL) decision to buy Mesaba from Delta (DAL). It's an interesting move that should help Pinnacle in a number of ways, not the least of which will be erasing a tarnished brand.

Mesaba, a former Northwest Airlink service provider that joined the Delta network following the Delta/Northwest merger, was purchased by Pinnacle Airlines for a cool $62 million. Pinnacle was also a former Northwest Airlink operator, so this combines two companies that are very familiar with each other and have operations focused around the former Northwest hubs.

You might remember that Pinnacle also acquired Colgan Air more than three years ago, and it appears that the Colgan brand is set to fade away. Colgan has developed a pretty awful name for itself after the Q400 crash in Buffalo last year. Its name has become synonymous with inexperienced, sleep-deprived pilots thanks to the press coverage (fair or not, it doesn't matter) after that crash. So what do you do with a tarnished name? Pull one out of the ValuJet/AirTran playbook and ditch it.

After ValuJet flight 592 plunged into the Everglades in 1996, bookings disappeared overnight. The name ValuJet meant "unsafe" for most people, and this accident was the final straw. So the ValuJet guys went out there, bought a small operator called AirTran, and took the name. Poof! The ValuJet name was gone.

Now, Pinnacle says it will eventually consolidate its jet fleet under the Pinnacle name and its turboprop fleet under the Mesaba name. Yep, Colgan goes away completely. But there is actually good reason for consolidating the business this way as well.

At this point, Pinnacle operates 126 fifty-seat jets and 16 ninety-seat jets. Mesaba has 41 of those same ninety-seat jets and 19 of the same fifty-seat jets. So ultimately, I assume, those will go under the Pinnacle name and will simply create a larger fleet with the same two fleet types that are already being operated.

Mesaba, however, also has 32 thirty-four-seat props. Those aircraft fly for Delta now, but they'll be phased out by the end of next year. You might think they'd just go away, but you'd be wrong. While Colgan's growth is in flying seventy-four-seat props for Continental (it currently has contracts for 30), it also has a fleet of 34 of those same thirty-four-seat props that Mesaba flies.

Those airplanes operate for United and US Airways, but guess what? They're getting old and the Mesaba aircraft are newer. So this makes for an easy transition into newer aircraft as they leave the Delta fleet. The older aircraft can then be retired.

This would seem to make for a very convenient merger. It's made even easier by the fact that Delta is self-financing the purchase and has given Pinnacle a nice, long contract to operate under, guaranteeing revenues that make it worthwhile.

In the end, this is a smart move for Pinnacle, and it's a logical end for Mesaba as well.

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