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.
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.