Republic Airways Files for Bankruptcy
Photo via Flickr
On Thursday, Republic Airways became the first airline in the United States to file for bankruptcy since American Airlines in 2011. Republic flies regional routes for the affiliates of all three legacy carriers (Delta Connection, American Eagle and United Express).
It is no secret that Republic has been struggling, but some people will still be surprised by the announcement of its Chapter 11 filing given the current state of the industry. Airlines have been enjoying low fuel prices and high profits. Why wasn’t Republic able to take advantage of the most favorable conditions in years to avoid going bankrupt?
Republic has $2.7 billion in debt hanging over its head. Last year, it finally reached a deal with its pilots after contentious negotiations, but labor shortages have continued to cause problems. Already on its heels, Republic spent the past few months trying to renegotiate its airplane lease deals and come up with more workable agreements with the airlines that it flies for. Republic’s current contracts basically see it paid a set amount for every flight that it operates for one of its three main partners. Thus, if flights are grounded because of a lack of pilots (or for any other reason), Republic loses 100 percent of the potential income for that flight.
The renegotiation efforts have obviously been too little too late. The airline’s CEO, Bryan Bedford, laid the blame on both labor disputes and the failure of negotiations with the airlines that Republic flies for: “Our filing today is a result of our loss of revenue during the past several quarters associated with grounding aircraft due to a lack of pilot resources, combined with the reality that our negotiating effort with key stakeholders shows no apparent prospect of a near term resolution.”
Republic had been very vocal about new FAA rules that require assistant pilots to have as much training as head pilots. This severely limited Republic’s pool of pilots. However, some pilots have said that the biggest issue is low pay, not the new experience requirements. To be fair, other regional airlines have also struggled with the same issues that Republic had to deal with. However, they have not yet had to file for bankruptcy.
During bankruptcy proceedings, Republic could try to get the court to throw out lease agreements for airplanes that are not in use and to cancel contracts that are no longer profitable. Whatever the final terms of the bankruptcy end up being, Republic will come out of the process as a leaner, smaller operation. Bedford explains that the goal is to simplify the operation and to create “a single fleet, a single operating certificate carrier and one airline with a very bright future.”
It remains to be seen how “bright” that future will be. If Republic is able to come out of bankruptcy proceedings and build a profitable operation, its simplification strategy could provide a blueprint for other regional carriers to follow as they look to deal with similar issues before they have to resort to bankruptcy.
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