Republic May Have the Strangest Bankruptcy Filing Ever

Have you ever heard of a company filing for bankruptcy protection so that it can increase its costs? I’m going to guess not. Yet that’s what Republic appears to be saying may happen. As its pilots dig in on contract talks and its operation suffers, Republic is threatening bankruptcy. This whole thing is completely insane, but of course, there’s more here than meets the eye.

About a month ago I wrote about how Republic was having trouble finding enough pilots to run its operation. Republic says that the problem is it’s not paying its pilots enough to be able to attract enough new pilots to run its operation. It wants to pay more but can’t get the union to agree on a new contract. Until that happens, management can’t modify the existing contract.

Republic and its pilots have been negotiating on and off since 2007 and haven’t gotten anywhere. There was a tentative agreement last year that was rejected, but that’s about it. In the meantime, Republic continues to pay its pilots poorly, and the airline thinks it can’t attract new people to fly because of that. Frustrated with negotiations, management put up a “last, best, and final” offer a couple weeks ago and assumed that the pilots would be given the chance to vote on it. After all, management said that it “is the Company’s final attempt to avert a non-consensual restructuring. If we are unsuccessful in getting a new contract approved we will be on a path to a restructuring process in which we may no longer control our destiny.”

Now, the idea of filing for bankruptcy to increase costs is a strange one, but the bottom line is that Republic isn’t in a place where it can staff its operation properly. And when that happens, the legacy airline partners get mad. There is a great deal at stake here, including its contracts with those partners.

How bad is the operation? While on-time rates in August seem to be similar to what other regionals were operating, take a look a these cancellation rates from masFlight.com.

Republic 2015 Operational Performance

With the odd exception of the Delta 50-seater fleet, Republic is canceling a couple percentage points more than the other regionals at each legacy carrier. That is really bad. Presumably there are operational penalties that will come into play, making the airline’s situation even worse. And if it stays bad, then the other airlines must have some kind of “out clause.” All Republic can do now is negotiate frantically to try to reduce its flying to keep its head above water.

But in Republic’s eye (at least publicly), the long term solution is to pay pilots better and attract more of them. That’s why it laid down the “last, best, and final” offer. It needs this to happen sooner rather than later, but it won’t.

Local Teamsters leadership found enough problems with the deal that it refused to send it on to membership for a vote. The national union could have overridden the local, but it refused. Now, we just grab the popcorn and watch.

This is brinkmanship at its best. The pilots have to believe that management has backed itself into a corner. If the union doesn’t let its members vote, then management says it will start down the path toward filing for bankruptcy. So the pilots are going for the throat. They’ll push for an outstanding contract and will settle for nothing less, apparently not caring if the company does indeed file. What if management is bluffing and won’t actually file? The union has to love the idea of calling that bluff, further discrediting senior leadership. It’s a twisted game going on here.

On the other side, management has played its “last, best, and final” hand too many times. Now the options are limited. It either has to cave on the “last, best, final” thing and go back to the negotiating table again, cave on the “bankruptcy” thing and not file for bankruptcy, or actually file for bankruptcy and maintain its integrity. None of these options are good for management.

The two sides continue to dance and get nowhere. This is tiresome for everyone involved, and it’s a bad situation for the people of Republic. The worst part is that even if there is a new contract, that doesn’t mean Republic’s problems are all solved. Yet that’s where the airline is putting all its eggs right now. There is no easy way out of this mess. I wish everyone involved the best of luck, because this is going to suck.

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38 Responses to Republic May Have the Strangest Bankruptcy Filing Ever

  1. Olamide says:

    Great analysis cranky. I have many friends that work at republic and it is a shame that things have come to this. the situation there is so toxic you wonder how everyone will be able to move forward. The thing that jumps out at me is how different there current contract is compared to the last best final offer. Let’s hope for good things to come in the future for everyone

  2. Bob says:

    As someone that used to work there I can attest to the very toxic relationship between management and everyone else.

    I applaud the Union for saying no to this agreement. It is time for Bedford to go and restructure the place back to when it was the best regional to work for.

  3. Eric C says:

    I’ve heard rumors that the LBFO removed previously settled upon language with the intent of making several of the pay rules much more vague – and this is a management team that will pounce on vague language to their own advantage. The pilots have no trust at all. Any language that isn’t iron clad can and will be used to stab them in the back, so they believe.

  4. Robert says:

    just file for bankrputcy and let SkyWest or Mesa ,[surprisingly a strong regional,after their own baknruptcy] buy them and be able to pay very well,to keep pilots and other staff/ I prefer Mesa buying them instead of SkyWest so that Mesa would be better able to compete with SkyWest /I do not want a monoply of regionals / If Mesa could buy Republic ,then maybe they could get rid of almost ALL of the 50 seaters-[just a few needed for very thin markets] and get more-70-90 RJs and be more reliable regional feeder ,like SkyWest
    thankyou

  5. Scott says:

    Very curious… what’s in the LBFO that’s so objectionable? Particularly given that, in this case, management is angling to make the company more attractive to pilots?

    • Travis says:

      The supposed LBFO was not put up for a vote because the process didn’t convince Local or National Leadership that the Negotiating Committee should be bypassed. The Negotiating Committee believes that they are not done. The company did put a lot of good things in the offering. But this isn’t a free process. The company can’t simply impose this offering without completing the process. They exercised their right to attempt to bypass the Negotiating Committee and the attempt failed, for a good reason. That said, a legitimate TA or LBFO might look very much like what was just offered. And if they were offering with integrity and have no problem with being transparent in language interpretation, they would immediately agree that they should complete negotiations. In my opinion, this was a final attempt to get a few freebies, without Union meddling. It’s a game…

      • Erika says:

        The Company also haulted negotiations and refused to come to the table. Then, presto. They had their “LBFO” FedEx’ed to all their pilots in a nice heavy-glossy paper-bound book. There were a few articles that the Union had already posted to ther membership as TA’ed that the Company has changed many sub parts. Also, there were so many undefined terms and unexplained sub parts that the Union felt it was not appropriate send out for a vote. Add to this that the Company even sent out a memo saying that there were errors in the “LBFO” that they hoped would be “overlooked.” And their final nail in the coffin for this document was that this offer has been the fourth or fifth “LBFO” and each one has been an improvement over the last, all with post-offering amendments sent out via non-binding memos.

  6. JayB says:

    Another reason why I hate the idea of code-sharing. So I buy a ticket from UA and then I learn all the problems with its subcontractor.

    You can read story after story about problems with a regional operating under someone else’s marketing. I have enough problems with the principal. I don’t need more problems from the code-share.

    • One track commenting JayB? Its a bit tired of a refrain that always finds its way in here.

      That being said, I’d rather have the strength of a major being responsible for ultimately getting me to my destination than relying directly on the regional. If a regional has issues the major has options on its table, other regionals, bringing in their own metal, etc. Whereas a stand alone regional would have none of these things.

  7. Dan says:

    Yeah, those completion rates are terrible. Back in my day, 98% was considered the floor for acceptable completion rate. The 93% shown for one of those operations is just terrible.

    The aviation blog on the Dallas Morning News has the old and proposed pay rates. The newhires do see the biggest benefit, but even long-term FO’s are looking at 20% pay increases, and the captains are looking at 12% increases. The column also references that Republic would become the best paying regional.

    So there’s got to be QOL issues or some other thing with the language going on, possibly as Eric C references. Pay rates are only one piece of a much bigger puzzle.

  8. Nathan says:

    The pay raise in question in the LBFO is still below what the COL has gone up since the contract became amendable. I’m sorry. but if Republic can not pay the pilots what they deserve they need to rethink the long term viability of this operation. BB has been underpaying the pilots for almost a decade and he is only offering a pittance increase in pay? It’s not the pilots fault BB painted himself into a corner but I hope they squeeze every dollar out of him, leaving just enough to keep the investors happy.

    The pilots really can not lose in this one. In all likelihood the entire workforce will churn in the next few years as the majors ramp up hiring. Sure you have a few lifers but for the great majority this is a means to an end and not a lifetime job. I’m glad to see that pilot group stand strong and try to leave Republic, and the profession, in a better place than they found it.

  9. Spud says:

    The basic concept of presenting something like the LBFO as any for of “agreement” is just dumb.

    The key to ending the downward spiral at RAH is to get busy bargaining, instead of trying to shove something down the pilots throats.

    And yes, all 19 articles that had been previously agreed to were changed.

    Vague, unenforceable language isn’t something the RAH pilots will ever agree to at this point. Until Bedford (RAH CEO) gets that through his skull, I don’t see a resolution.

    I’ve been through a bankruptcy before, and the first thing the judge told every single party when they started the 1113 process was that he wanted a consensual agreement, not something he would impose. Guess where that leaves RAH in this silly bankruptcy threat? In the same position they are in today–needing to actually bargain with their employee groups. They seemed to be bargaining and getting to agreements for a while after the TA was voted down in 2014, but then it seems like RAH just stopped negotiating when they came up with their plan to force this thing on the pilots.

  10. Jim says:

    Brett, do you have any idea what exactly the pilots have an issue with in the contract? I just can’t fathom that the airline wants to raise pay and the pilots are not accepting it. Is there something else besides pay that is involved here.

    • Coolbeans says:

      They did not bring it to a vote because it was brought to the pilots without going through the union first. The big items all looked good but the devil is always in the details. How much you make as a pilot although important is only a portion of the overall compensation package. I could make a 100 dollars and hour for every hour I fly but if the contract does not have cancellation pay anytime one of those nasty thunderstorms rolls through and cancels all the flights for the day I get nothing.

    • Jim – I think others have answered much better than I could, but my understanding is the biggest issue was the backtracking on articles that were already agreed to.

  11. SEAN says:

    Meanwhile back on the Texas ranch, The Hill reported today that Jeff Smithsec & two associates at United have resigned do to a corruption probe involving state polititions in NJ, SC & the PANYNJ.

  12. Michael says:

    19 tentatively agreed articles with the 4 biggest articles left at an impasse. The company went back on those agreed articles, changed them to their liking, created new sections that remove power from the union while giving the company power to continue giving new hires big bonuses while not giving existing employees raises that keep up with inflation. Not giving existing employees retroactive pay that was lost in the last 8.5 years of negotiations that were stalled by the company. Telling the union 12 million was the most they could afford and then producing its 4th Last, Best, Final Offer to its pilots and to the rest of the Republic company which can view what was offered to put pressure on the pilots so that if it was voted down or not voted on they could blame the pilots for the bankruptcy. Also in the proposal is no agreement that should the next contract take 9 years to negotiate that it is at no penalty to the company while the pilots suffer for another 9 years of no pay raises.

    NO THANK YOU!!

  13. PO'd passenger says:

    Those greedy pilots should really be thankful just to have a damn job.

    • Nick Barnard says:

      Why don’t you join an in demand profession?

      Sent from my computer that moonlights as a phone.

    • Brad says:

      It’s not about the money. It’s about the awful language that would nullify most, if not all of the gains that management is touting to the public. It’s about quality of life. It’s about knowing that you’ll be home when you’re scheduled to be. It’s about preventing 8 years of torment from happening again. It’s about keeping healthcare costs from eating up any pay increases we do see. It’s about protecting our jobs from being outsourced to yet another lowest bidder. It’s about preventing the company from circumventing the entire bargaining process we’ve fought these years to uphold. The press saying that the pilots won’t take more money is exactly what management wants: make the pilots look greedy.

    • Jabber says:

      PO’d passenger the “greedy pilots” are FAR under compensated and have been being paid on 2003 salary rates. And as far as being “glad to have jobs” we are away from home and our families on average of 16 nights per month ONLY being paid for the hours we are in the air..! Pilot are leaving in masses and its not from the top…. It’s the new hires that can earn more money by going to a competitive company. Happy to have a job…. F-YOU… I qualify for food stamps in the state I live I, yet I’m a commercial pilot and should be HAPPY to have a job.

    • Julie says:

      You’re an idiot. Do you have any idea how much those pilots have to pay for flight school? Do you have any idea how many hours they have to spend away from their home? Did you know that they don’t get paid for anything until the Main Cabin Door is closed? Did you know they are on duty up to 16 hours a day but NEVER get paid for 16 hours? Usually, it’s about half of that. Sometimes even less. Pilots are some of the most dedicated professionals out there. It’s not just a job to them. It’s their love of flying that makes them keep doing what they do -even when wages are shitty. You should be glad and thankful they feel that way. They deserve to be paid fair wages. They have our lives in their hands and that’s a lot of responsibility. They deserve our respect and they deserve to be paid well.

  14. Steve@CVG says:

    So what happens if the pay scale is the best in the regionals and they get more qualified talent and a few years down the road they pull a Comair with labor costs too high? Not being in the industry other than paying the majors with my high fares out of CVG, won’t DL et all try to look for the lowest cost bids from the regionals to fly those routes they don’t fly?

    Seems to me a slippery slope.

  15. Coolbeans says:

    I don’t think the pilots want an unreasonable amount of money but the do want to be fairly compensated. Now we can go round and round at what that dollar rate is but right now the republic pilots don’t feel they are at that level and nor does the management of republic which is why they offered this last ditch contract. The regional pilots are not stupid they see the majors announcing all this growth and profit. They have also watch the major pilots improve in pay along with bonuses. They fly half the flights around for the majors and have not benefited from the better times. It will be and interesting next 2 to 3 years especially if congress does not lower pilot hourly requirements look to see some crazy things in the regionals.

  16. dan says:

    the 3 legacy airlines left must realize their shell game is over…it is time to roll into the big 3 all regional flying..DL and the 717 operation have proved that this is the best solution. B6 also has been positive with the E190. The time has come to ground all remaining 50 seaters that people hate(except the E145) and have UA AA and DL fly the 76 seaters…after all they use the parent company’s gates, gate agents, reservation system….etc etc. How congress approved airlines to cheat passengers by advertising code share regionals as their own airline is beyond me.

  17. Chris says:

    as Dan said it is all a shell game. We give you a pay raise here to make us look more attractive, but take it back over here without you knowing ahead of time. RAH says they can’t afford to fly at those increased costs so they shut down. The Majors take that flying with lots of those planes they own anyway and move the flying to another regional. They hire all the pilots again for less money and the game starts again.

  18. dp says:

    the time has come when the pay for regional airline f/o’s is raised to a level where they do not qualify for food stamps

  19. ST says:

    They are trying to start FO’s at 40 dollars per flight hours the CA’s are still 6 dollars higher than any other regional. They are filing bankrupcy to get the FO’s there money and day for day reassignment pay protection now. The pilots/union were so worried about us out sourcing? We are an outsource for other airlines, so why would we outsource and already out sourced company. (insert xhibit meme here) Its a 3 year contract that will make everyone happy now, and when its up the pilots and union can return to the table with their #moonridepay demands.

  20. SJS says:

    It is about time Management reap what they sow. When you screw your employees over for damn near a decade they will not cave to some crappy LBFFFO. If they cannot pay their pilots than they don’t deserve to be in business. I doubt anyone will lose their job during bankruptcy because they are bleeding pilots and can’t attract new ones. Bedford and Co created this. They are to blame for the current situation

  21. marks says:

    To answer the headline question cranky, no, I have never heard of a company going bankrupt to increase its costs. And lawyers for stockholders would have a field day if directors tried it.

    Which says to me that those “increased costs” really aren’t increased at all. That’s simply unbelievable, most likely, some costs are increased, but there are bigger cuts to pilot benefits somewhere else. The pilots have picked that up and won’t accept an overall benefit cut.

    Really, it’s just a nicely spun headline, but it’s the same old industrial relations song, managements want to reduce wages and benefits, workers want to keep them.

    Going bankrupt to increase costs? Anyone believes that, and I have a bridge across the River Thames to sell them…along with this used car only driven by a little old lady. Ha.

    • CF says:

      Marks – I don’t know anyone who thinks that Republic is trying to put together a contract that’s going to be less costly than what it has today.
      It may not be enough for pilots to be in favor of it, but it’s most certainly going to result in higher costs.

      • marks says:

        I agree with that cranky. :)

        My point was that they are unlikely to attempt bankruptcy in order to do it. To go bankrupt, you have to be in a position where you can’t pay your bills as they fall due. Otherwise, all you are doing is winding up the company, something quite different. But to do that without stockholder agreement would be rather fraught. But ok, assuming they got stockholder agreement, they could wind the company up. That would end the contract, and mediation process. They could then offer a new contract and recruit “new” staff. Of course, that would involve all sorts of costs, and if enough pilots didn’t sign up, they’d soon be bankrupt for real. Not to mention they’d have to think about whether all other contracts would be invalidated by the restucture and have to renegotiate that. The fact that contracts don’t expire is a feature that enables the government to step into essential industries and keep them going as there is a contract and mandatory mediation process. Absent a contract, government couldn’t stop essential workers walking out.

      • marks says:

        PS, I should add that unless we know the details, we can’t really know if the Republic offer actually does increase costs overall. Plenty of contract offers require a no net increase – it’s very common. If people want more salary, they often have to make efficiency gains somewhere else. However, given Republic’s attitude to negotiations, do you really think they are offering more overall?

  22. Good analysis. It is hard to determine where this is going to end up. There is no easy out for management. I agree that the only thing is to sit back with a bag of popcorn, watch and wait.

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