Republic Goes Bankrupt And I Wonder If It’ll Survive the Process

The long, drawn out descent of Republic Airways continues. The company, which flies as a regional feeder for American, Delta, and United, filed for bankruptcy last week after a rocky few years. This will be an odd bankruptcy, though not as strange as it could have been last year. This bankruptcy is about fixing its mistakes over the years. That sounds good, but it’s risky. I can’t help but wonder if Republic survives this process.

Republic Shopping in Bankruptcy

Republic used to be a shining star in the regional industry, but that reputation is long gone. I’m not sure when to actually pinpoint the start of the downfall, but certainly the decision to acquire Frontier and Midwest was right up there. Or maybe it was when Republic ordered C-Series aircraft despite having no way to fly them for a partner (it was Frontier or bust). Or maybe it was after buying Frontier and Midwest, Republic sold the combined airline for nothing just as it was starting to make money again. (The new owners are making a ton of cash.)

Storm clouds gathered last year when Republic admitted a pilot shortage was hitting it hard. Things got worse when Delta decided to renew an agreement for 50-seat jets (which it had the right to do) that Republic expected to expire. Despite finally coming to an agreement on a new contract with its pilots, that wasn’t enough to solve the problem at hand. Things got worse later in the year when Republic simply couldn’t operate its schedule. Delta has sued the airline and was forced to make some really close-in changes last December because of this.

Now, the airline has filed for bankruptcy protection. As I mentioned, Republic signed an agreement with its pilots to increase compensation last year. And according to the letter sent by CEO Bryan Bedford (see the text in reply 6), it has no interest in making any changes to labor agreements. So what’s this all about?

Ditch Airplanes It No Longer Wants
The backbone of the fleet is a mix of Embraer 170s and 175s. It wants to continue operating those aircraft going forward (and continue taking delivery of those on order), but it has some other airplanes it wants gone. This is like a graveyard of bad decisions.

  • It still has those ERJ-145s flying for Delta which it wants to get rid of. It should have found a better way to ditch them when these were still operated by a different standalone subsidiary.
  • There are some other ERJ-145s that aren’t flying at all but are collecting dust in the desert. It wants those to disappear.
  • It has announced that the Q400 aircraft flying for United are going away, but it wants them gone faster. Those weren’t with Republic for long. That was related to the ill-fated effort to pick up that flying from Colgan just a couple years ago.
  • I believe Republic is still flying 5 Embraer 190s for Caesar’s on charter, but that may have expired. Those airplanes were never a good fit but operated under the Frontier/Midwest banner back in the day and need to go away.
  • Republic still has a sizable order on the books for the C-Series. With no prospects to be able to fly that for any partner, I just don’t understand that one. That needs to go.

Once it gets rid of all the airplanes it doesn’t want, it can then focus on the Embraer 170/175 and combine its two subsidiaries (Shuttle America and Republic) into one. That’ll be a smaller but leaner operation. It’ll reduce costs and all will be well, right? Well, not so fast. Because the other part of the equation is a little scarier.

Break Contracts With Its Airline Partners
Today, Republic operates airplanes for each of the big three legacy carriers. According to Bryan’s letter, “we must negotiate additional revenue from our codeshare partners that recognizes the true cost of the product, that reflects our value in the marketplace and the value we provide our partners.”

Right. I don’t think Republic has any real value in the marketplace other than being able to provide (lately, un)reliable low cost transportation for the legacy carriers. It has the planes and it has some pilots. But if another operator can do it for less, then that’s still how the marketplace works. (Anyone have another explanation for why Mesa is still winning business?)

Clearly the contracts aren’t where Republic wants them, but will it have the leverage to get these guys to agree to a new deal? This is a risk for Republic. If it breaks the contracts, then the partners may go elsewhere. The only thing Republic has on its side is that it has the airplanes (and orders), and it might take other airlines more time to ramp up. But you can bet that the legacies are all investigating that right now.

The tone that Republic is using makes it sound like there’s no risk to the airline at all. This is just a simple process. But I don’t buy it. This piece from Bryan’s note in particular made me take notice.

We have worked for months with our stakeholders to attempt to restructure the obligations of our out-of-favor aircraft and to increase our codeshare revenues; it has increasingly become clear that this process has come to an impasse and that we can no longer afford to waste our valuable resources.

If the aircraft owners don’t want to negotiate, this will force their hand. But what about those airlines? If they can’t come to an agreement outside of bankruptcy, then that means the airlines aren’t going to make it easy inside of bankruptcy. Maybe the airline partners will decide that with the contracts broken, they have better places to put their airplanes. We don’t know. But it is a risk.

[Original used car salesman photo via Shutterstock]

Get Posts via Email When They Go Live or in a Weekly Digest

Leave a Reply

31 Comments on "Republic Goes Bankrupt And I Wonder If It’ll Survive the Process"

avatar
Sort by:   newest | oldest | most voted
Abraham
Guest

I’m actually rather excited about the prospect of Republic shutting down altogether. While frequency will likely take a hit at non-hub airports I can’t wait to escape from all 50 seat regional jet flying. I would hope this would accelerate a move to the major airlines running nothing but 76 seat and larger airplanes ideally by main-line flight crew.

Jim
Guest
Republic IS leaving the 50 seat market and INcreasing the 70 seat ejet market, so why would they have to shutdown to make that happen? Republic, Compass, Skywest and Mesa all operate E170 equipment. That flying going back to mainline isn’t going to happen. Now mainline operating the 100+ seat market with the E190 product is happening and they will absorb much of their flying back from the regionals that way. Republic is trying once again to lead the pack by vacating less profitable 50 seat/turboprop aircraft while simultaneously retaining and attracting qualified pilots which are becoming more valuable to… Read more »
Fred miller
Guest

Republic shutting down would be incredibly good for the industry. The flying will go to stronger regionals and hopefully mostly back to the major airlines. This would be a boon for safety as well by getting rid of a huge number of lower quality pilots at the regional level.

Eric C
Guest

Those pilots will be employed instantly. The majors are, collectively, hiring the equivalent of a Republic annually. The regionals will hire anyone who meets legal minimums, and will train and retrain them until they pass. That’s the hidden danger of the 1500 hour rule: there’s not enough supply to be discriminating any more.

Eric
Guest

The insuation that regional pilots are not qualified and equally skilled as mainline operators is completely false. Many regional pilots have been stuck at their respective airlines for well over a decade through no fault of their own. It has been considered the lost decade for mainline hiring, no movement or career opportunities for those stuck at a regional level. Your ignorance to the skill set and caliber of employees speaks largely to your knowledge of 121 carriers as a whole.

Anonymous
Member

Nonsense! A few years ago in a survey of age / qualifications / experience conducted by one of the majors, they found that the median of their (large) regional was higher (= more experienced) than the mainline!
Why? Retired military, pilots made redundant from failed carriers etc.

I have no doubt that the picture has changed now – but don’t be too quick to jump to conclusions!

Eric C
Guest
The majors need to realize that they can’t keep awarding contracts to regionals at unrealistic rates. Many regionals must bid under cost because it’s still better than losing a contract altogether. There’s more planes that need paying for than their are contracts to pay for them, and in that difference is desperation. This does no one any good. There’s not fat left to trim, what’s left is reducing the entire operation to the smallest, cheapest thing that can function just well enough to blame its operational issues on weather, major partners, or a pilot shortage. What’s more, in propping up… Read more »
Nick
Guest

I think it’s interesting that the people making so many poor decisions at Republic are still the same top executives. I don’t think a mainline carrier will snatch them up (i.e. Delta/Endeavor) but I could see another regional buying at least part of the company or its assets. With their pilot rates much higher I don’t think we will see any type of true “merger.”

Dennis Garrou
Member

The “regional airlines” are not really airlines at all; they are “wet lease lessors” to three large legacy carriers, who are always looking for the best lease deal they can find. Republic et al will continue to get squeezed until their business evaporates when mainline carrier pilot union aircraft minimum size mandates kick in.

David SF eastbay
Member

Having to deal with AA/DL/UA isn’t going to be easy. They might need the counts to break all contracts and start all over again.

Joel
Guest

Mesa may still be winning business now, but they’d better be careful. The only reason any pilot shows up there is for a quick upgrade, which will go away once the growth is over. (See also: PSA)

DesertGhost
Guest

This looks a lot like Mesa’s bankruptcy a few years ago. It was relatively successful. That doesn’t mean Republic’s will be. Bankruptcy is always a risky business, even with a lot of cash.

Eric A.
Member

Now that the industry landscape is 3+1+.5(ULCCs ) ‘regional’ consolidation was inevitable. It’s a catch 22 for the big 3: consolidation is good for product consistency and vendor stability but there are fewer non-wholly owned carriers to play against each other and whipsaw for the best contract.
Even as a zombie regional, RAH fills the role as an actor to play against indies and wholly owneds to keep overall costs in line.

PHLLAX
Guest

The Caesar’s contract ended in the 2nd half of last year. I’m surprised that they haven’t tried to sell the remaining 190’s back to AA.

Nick Barnard
Member

Interesting. I wonder if AA wasn’t willing to give Republic as much money for them as they wanted. Perhaps AA or DL will pick these up in Bankruptcy.

Anonymous
Member

Interesting that so many people want to see the end of smaller RJ’s. All that does is it makes smaller communities more difficult to serve – and note how many small communities have already lost service. That creates a nice opportunity for a regional to pick up and develop markets that have little or no service – and that cycle which we saw in the ’80’s and ’90’s will repeat all over again. An opportunity for Cape Air, or similar…..?

Dennis Garrou
Member

ejwp said, “That creates a nice opportunity for a regional to pick up and develop markets that have little or no service.” WHAT regionals? There are none. They don’t make their own schedules or sell tickets; they wet lease airplanes and crews to the big guys.

Anonymous
Member

apart from Cape Air, Great Lakes, Silver, etc……

Nick Barnard
Member

AFAIK, there is some at risk flying that the regionals do.. They set schedules and prices, although its flown under the major’s brand.

Nick Barnard
Member

What are the chances that UA picks up the ashes of Republic to have an in house regional. They’re the only major without one or two.

Aphro38
Guest

Won’t happen.
Tried with Air Wisconsin years ago and failed due to AFA scope clause.

http://caselaw.findlaw.com/us-dc-circuit/1056496.html

Nick Barnard
Member

Perhaps, but that was 1995, and UA has been through a bankruptcy and a merger since, who knows if that language is still in the flight attendant’s contract. I’d expect that its found its way out of the contract.

Aphro38
Guest
Mirabella
Guest

If Republic decides to assume its executory contracts during bankruptcy, it has a statutory requirement as debtor to demonstrate it can perform its obligations in the future. That could be tricky.

jaybru
Member
This is a mess that is only going to get worse as airlines shed any responsibility for operating routes with their own crews and aircraft. Contracting out may be nice for the airlines but is crap for the contractors and the travelling public. Leaving it up to a contractor to find crews, leaving it up to contractors to keep up with the right-sized aircraft a principal wants, being able to bid a price to cover costs in a concentrated industry where take-it-or-leave it is becoming the norm, is a march to disaster. This disaster starts with what the airlines are… Read more »
Nick Barnard
Member

Flights or Available Seat Miles?

The difference is important.

Sent from my computer that moonlights as a phone.

Dan Larsen
Guest
I worked as a ramp rat for Atlantic Coast (United Express) back in the early 2000’s, although i was gone by the time the Independence Air fiasco rolled around. The first thing you learn is that the business of regional airlines are the industry’s dirtiest little secret. I have no comment on the I-Air business model, but the whole thing started because United wanted to (and did) cut their rates. ACA said no, you have a contract that we want you to honor. (Again, it’s not like people get rich in the regional world.) When push came to shove, ACA… Read more »
Paul A.
Member

I am truly surprised that more Regional Airlines haven’t had this problem. (Great Lakes, Silver Airways, ect) because of the pilot shortage. And because a lot of them rely on the EAS contracts.

I Hope they are able to make it, but I doubt it, maybe Great Lakes or Silver will try to buy them.

wpDiscuz