TRADING UPDATE (i)

I initiated a small 2.5% position @ $0.31 in a bankrupt airline on the last day (April 10) of its trading on Nasdaq, so it was reasonable to assume that there will be some forced sellers. In a funny hindsight, I could have made it a 10% position and a quick double in 2 weeks. In any case, it was my fastest double so far, if only for a brief moment yesterday, and I wanted to feel a little genius for a minute.

Date Open High Low Close Volume Adj Close* Apr 23, 2012 0.51 0.67 0.48 0.53 506,200 0.53 Apr 20, 2012 0.41 0.49 0.41 0.47 195,800 0.47 Apr 19, 2012 0.44 0.44 0.41 0.42 182,100 0.42 Apr 18, 2012 0.40 0.44 0.40 0.44 99,400 0.44 Apr 17, 2012 0.38 0.41 0.38 0.40 118,800 0.40 Apr 16, 2012 0.40 0.40 0.39 0.40 205,600 0.40 Apr 13, 2012 0.41 0.42 0.39 0.40 172,200 0.40 Apr 12, 2012 0.42 0.44 0.30 0.43 1,063,700 0.43 Apr 11, 2012 0.33 0.45 0.32 0.44 764,300 0.44 Apr 10, 2012 0.32 0.34 0.28 0.30 1,487,200 0.30

Growing volume is a concern but most likely it is normal for normal people to run away after such a quick double.

Obviously to some, it is Pinnacle Airlines, a long time holding of Mohnish Pabrai. It is bankruptcy #2, if I remember correctly, from his recent portfolio names and #2 with the name Delta attached to it (Delta Financial was #1). Delta is the only client of Pinnacle. Delta is its death and life at the same time, future and past, profit and loss. Whatever… I like that it is doing not bad at the moment (EBITDA $3.7b and net debt of $10b) and PNCLQ is only a few percentage points of its operations.

In summary, my full of naivete investment thesis is:

== book tangible equity is +$200m (deferred revenue of ~$150m is accounting fiction)

== there are activists involved (Meson, Nantahala)

== Delta damages unsecured claim size is unclear but should be below $100m

== management is in the pocket of Delta and does not have any skin in the game

== bankruptcy fees will not exceed $50m

== as a result of confluence of all observations, Delta will have to maintain some face and will not cancel the entire equity (now valued at $10m) – my wild guess is $40m or 4x from today but in 18 months

And @$0.6 odds reflect the following: 30% probability of $2.0 ($40m) and 70% of $0. Or 15% - $4 (80m) and 85% - $0. Only with money I can afford to lose.

What's next: Pursuant to section 341 of the Bankruptcy Code, the United States Trustee for the Southern District of New York (the “United States Trustee”) has scheduled a meeting of creditors to be held on Thursday, May 3, 2012 at 3:30 


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This is not recommendation to buy or sell this stock. Please perform your own due diligence. I may sell or buy at any time in the future without any notice.