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 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]