This morning Delta Air Lines announced that it intends to cancel its regional flying contract with Pinnacle Airlines, effective July 31.

Delta contends that Pinnacle did not meet minimum arrival-time performance requirements for a period since flights began late last year.

Pinnacle entered into a new capacity purchase agreement with Delta in April 2007 to operate 16 CRJ-900 aircraft as a Delta Connection carrier and began operations under the agreement in December. Pinnacle has currently taken delivery of nine of the 16 CRJ-900 aircraft on order.

For its part, Pinnacle says that there are many factors that are “out of the airline’s control” when it comes to on-time performance. The operational schedule created by Delta is a key factor affecting on-time performance, Pinnacle CEO Phil Trenary told reporters today.

Under the capacity purchase agreement, Delta is required to collaborate with Pinnacle to create a mutually acceptable operating schedule. According to Trenary, Delta has created Pinnacle’s operational schedule since the beginning of operations in December 2007.

“We are extremely surprised and disappointed that Delta is attempting to take this drastic and improper action,” Trenary said today.

Not surprisingly, the news has not been kind to shares of Pinnacle stock, which are, as of this posting, down 28% on the day, trading at around 4.30.

Ticker: (NYSE:DAL); (Nasdaq:PNCL); (Nasdaq:MESA)