Originally Posted by CAPTAINPCL

A bankruptcy-court judge on Wednesday cleared regional carrier Pinnacle Airlines Corp. (PNCLQ) to leave Chapter 11 as a unit of Delta Air Lines Inc. (DAL), a decision that streamlines Pinnacle's operations and costs in an increasingly consolidating airline industry.

"There was a time where the future of this case was in doubt," said Judge Robert E. Gerber of U.S. Bankruptcy Court in Manhattan, referring to moments earlier in the case where Pinnacle would have likely folded without loans from Delta, its only substantial creditor and customer.

Pinnacle said it expects to be out of bankruptcy by May 1, and that the only regulatory approval it needed--an obscure one from the U.S. Department of Transportation--won't delay the deal.

"It has been a rather turbulent last 12 months for us," said Davis Polk & Wardwell LLP's Damian S. Schaible, a lawyer for Pinnacle, which filed for Chapter 11 protection last April.

Pinnacle used its bankruptcy to cut deals with its three main unions that call for deep concessions among those workers. It also focused on cutting its operating costs in the ever-competitive airline industry, and ended up in the wings of Delta, its only remaining customer.

The deal calls for Pinnacle to nearly double the number of large planes it flies for Delta to 81 and to phase out its fleet of smaller planes. As part of a compromise, Pinnacle won't have to pay fees to Delta for returning those smaller planes, which should save the company more than $100 million. Pinnacle also will cut the number of routes it flies for Delta, focusing only on more-profitable ones.

For unsecured creditors other than Delta, as well as union groups, Delta will deposit $2.25 million into a trust. When the claims are sorted out, those creditors will divvy up that money.

"At certain points, it looked like this company wasn't going to come out of bankruptcy," said Morrison & Foerster LLP's Brett Miller, a lawyer for Pinnacle's official committee of unsecured creditors. Earlier in the case, a group of equity holders--who will be wiped out by the plan--vehemently fought against the Delta loans.

Pinnacle, based in Memphis, Tenn., operates flights between hubs and smaller cities for Delta, although it used to fly planes for other carriers.

The company, which employs more than 5,000 people, plans to move its headquarters to Minneapolis.

Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.