Republic Airways Holdings appeared to resume its downward trajectory toward a potential bankruptcy when the leadership of its pilots union refused to put the company’s last, best and final and final offer for a new pilot contract.
Republic subsidiaries provide regional airline service to American, Delta and United airlines.
Republic says pilot shortages caused it to reduce operations. Pay raised, benefits and working conditions have been at the heart of the protracted contract negotiations between the company and the Teamsters, which represents the pilots.
Republic previously restructured one of its smaller subsidiaries outside bankruptcy, but with pilot shortages and reduced revenue to support debt service, the situation is worse now than it was then.
Republic also has billions of dollars worth of aircraft orders, with nearly $2.7bn due next year. This includes the first of 40 Bombardier CS300s and a number of Embraer E-Jets.
“As of June 30, 2015, the Company has firm orders to purchase 40 CS300 aircraft that have scheduled delivery dates beginning in early 2015 and continuing through 2017. In January 2014, Bombardier announced that the aircraft would not be expected into service until early 2016. The Company has stopped making pre-delivery deposit payments on these aircraft,” Republic reported in its annual 10K for 2014 and the first and second quarter 10Qs. “The Company also has a commitment for 55 Embraer E175 aircraft under the United brand that have scheduled delivery dates between the third quarter of 2015 and the third quarter of 2017. In addition, the Company has a commitment for six Embraer E175 aircraft under the US Airways/American brand that have scheduled delivery dates between the fourth quarter of 2015 and the first quarter of 2016.”
Republic ordered the CS300s when it owned Frontier Airlines. The airplanes were intended for Frontier, and the order–instead of A319s from incumbent supplier Airbus–is what spurred Airbus to launch the A320neo program. Frontier has since been sold, but the orders, by Republic, stayed with the parent company. With no obvious place to use the airplanes, since they are larger than airplanes permitted under the AA, DL and UA labor Scope Clauses, the status of the CS300 order has been a matter of speculation ever since.
Bombardier continues to say the order is solid and there has been no change in status, but a bankruptcy would make it easy for Republic to reject the contract without penalty.
The E-Jet orders for the E-175 fall within the labor Scope Clauses.
Republic reported a six month profit but nonetheless had a $152m working capital deficit.
Republic’s fortunes began to decline when it purchased two carriers, Midwest Airlines and Frontier, in bidding wars with AirTran and Southwest Airlines. AirTran subsequently built up its service in Milwaukee (WI), the hub of Midwest, while Southwest began building its own focus city in Denver, the hub of Frontier. Republic later merged Midwest into Frontier, but the combination didn’t stem losses. Frontier eventually was sold to Indigo Partners, an investment group that owned a substantial piece of Spirit Air. Indigo dumped its ownership in Spirit as a prelude to buying Frontier. The carrier has since become an ultra-low cost carrier and is expanding throughout the US.