Short-haul carrier Republic Airways Holdings Inc. filed for bankruptcy Thursday, blaming a lack of pilots for its failure to succeed when major airlines are enjoying record profits.
Indianapolis-based Republic operates a fleet of smaller planes that provide flights for larger airlines including American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc. Although it landed a three-year union contract with its pilots last year, the company still had to ground aircraft just as it was trying to renegotiate agreements with the larger carriers and to rework terms of aircraft leases.
“It’s become clear that this process has reached an impasse and that any further delay would unnecessarily waste valuable resources of the enterprise.” Bryan Bedford, Republic’s chairman and chief executive officer, said in a statement Thursday.
Major U.S. airlines have reported record profits in the past two years. Republic’s filing is the first by a big airline since American went into Chapter 11 in 2011. Feeder Pinnacle Airlines sought court protection the following year.
Losing Pilots
While it was working to negotiate the labor contract, Republic was losing as many as 40 pilots a month, while adding about 30, according to Duane Pfennigwerth, an Evercore ISI analyst.
The new contract helped shore up the pilot base, but higher pay meant Republic had to get more compensation from Delta, American and United, according to Dan Akins, a Golden, Colorado-based aviation consultant.
Akins was involved in negotiations between the International Brotherhood of Teamsters, which represents Republic’s pilots, and the company last summer. If Republic was struggling to get the three major airlines to pay its higher fees, it may have turned to bankruptcy court to force their hand, he said: “It’s not the preferred path, and I know they did not want to do it.”
In bankruptcy, Republic could ask a judge to cancel unprofitable contracts without the penalties that would be imposed without court protection. The filing also will allow the company to escape leases for planes it’s not flying or that are too costly.
Slim Down
Republic has been working to slim down operations by flying the more popular 70- to 88-seat Embraer E170 and E175 aircraft, which are bigger than the Embraer E145 it’s operated for larger carriers. The E170 and E175 are considered in the same fleet type, and flying one type saves money by simplifying employee training and reducing spare parts that must be kept on hand.
The airline was flying 41 of the 45-seat E145s at the end of last year’s third quarter and has parked many of the 80 E145s it still controls, Aviation Daily reported on Feb. 23. The airline would remain liable for interest incurred on the parked planes unless it negotiates new terms with the aircraft owners.
The goal is for Republic to become “a single fleet, a single operating certificate carrier and one airline with a very bright future,” Bedford said in a recent note to employees, according to Aviation Daily. But he “can’t promise how it will all work out,” the publication said.
Flight Shares
As of the 2015 third quarter, Republic operated 110 of the 550 aircraft flown by the 10 smaller carriers American Airlines uses. It accounted for 16 percent of the 3,400 daily regional flights by American, the airline said. At that time, Republic’s Shuttle America flew about 15 percent of all Delta Connection flights.
“Republic is a valued longtime partner,” American said in an e-mailed statement. “It’s very early in this process and we will work with Republic and our other regional partners to make sure we take care of our customers.”
Delta spokesman Michael Thomas said the company had no comment on the filing. United didn’t immediately respond to a request for comment.
Republic reported 19 percent drops in its block hours, seen as a proxy for revenue, in December and January. Listing $2.97 billion in liabilities and $3.56 billion in assets in Chapter 11 papers in Manhattan federal court, the company said it has enough money to operate while it tries to reorganize.
Bombardier Blow
The bankruptcy may be a blow to Canada’s Bombardier Inc., which has struggled to market the C Series jet it’s developing. The aircraft is more than two years late and about $2 billion over budget. Republic signed a firm order for 40 CS300 planes in 2010, though Bedford later cast doubt on the agreement after the carrier’s strategy changed.
“For now, it’s business as usual, but we are monitoring the situation closely,” said Marianella de la Barrera, a spokeswoman for Bombardier. “We’ve seen many customers go through restructuring and bankruptcy protection only to emerge strong and better equipped to deal with today’s challenges.”
Even with an improved pilot’s contract, Republic’s recruiting efforts were hampered after the U.S. Federal Aviation Administration boosted required flight experience for first officers sixfold to 1,500 hours and set new limits on duty times.
“We’ll contact the company and see where we go from here,” Jim Clark, president of the International Brotherhood of Teamsters at Republic, said in an interview. “Business will continue.”
The case is In re Republic Airways Holdings Inc., 16-10429, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
(Culled from Bloomberg.com)
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