Union leaders stall contract vote for Republic

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.

11 Comments on “Union leaders stall contract vote for Republic

  1. This is certainly a bad new for Bombardier even if the company doesn’t want to admit it, this order is very weak.

    • I wonder how much Republic has paid to Bombardier in non-refundable deposits up till now? 10-20% of list price? If the amount is substantial there could be a silver lining in this for Bombardier. They could apply this money towards an especially attractive discount on a large order from a major carrier.

  2. sooo… who’s the bad guy here? is there a bad guy?

    we all know that regional airline pilots are basically indentured servants getting paid lowball salaries and working ridiculous schedules in the hope of someday hitting the lottery (hah!) at the Majors.

    but by the same token, the regionals are getting only the revenue scraps from the Majors in exchange for delivering the vital last mile connections without which the Majors would not be able to fill their highly profitable trunk routes.

    so, what is the takeaway here? Unions bad? Republic bad? Squeeze from the Majors killing both Republic and the Union?

  3. The termination of Republic’s operations would mean that major carriers would lose regional feeds. As this is in nobody’s interest, I am confident that something will happen in due time to bring a lasting solution.

    And yes, the order fo 40 CS300s (+ 40 options) might well disappear with this solution, unless someone else in the US is interested in those planes.

  4. The headline for the story seemingly blames the Union for delaying a contract vote. This looks like a point where a company is forcing a contract that wasn’t adequately negotiated with the Union, and they said no. The Union has an obligation to serve its .embers and if they think the contract is lacking, they are obligated to say no thank you and move to the next step in negotiating, whatever that is….. I might prefer that the headline be a bit more intellectually honest and say that the negotiations hit a sticking point as opposed to indicating that the Union stalled the vote. BOTH entities are responsible for not settling the issue, not just the Pilots Union…….

  5. My guess is, Republic goes bust, United renegotiates the E-jets delivery positions with Embraer to supply one of the other Regionals they use, and Bombardier gets stuck with a very damaging cancellation.

    Whether Republic can emerge and keep flying the planes they already have in their fleet is of course an important question. Losing that feed for DL, UA and AA would be problematic if the airline shut down entirely. Though many of the frames are fairly new and could be purchased or released by other regionals to resume the feed. Might be bumpy for a bit.

  6. Is it possible that Republic is preparing a new low-cost airline with its CSeries? In partnership with ?

    • @Captain: market intelligence indeed indicated Republic was planning to launch an LCC in Pittsburgh, Had the CSeries been on time (Dec 2013), the window of opportunity would have been there because US Airways abandoned its hub there. Today, however, Southwest, Allegiant, Spirit and Frontier are moving into Pittsburgh. Republic lost its chance. Furthermore, we understand that renewed contracts with UA, AA and DL (which for a time were up in the air, so-to-speak) make it problematic that Republic would be competing with them with a mainline jet.

    • Buffett smiles on Bombardier for his ritzy NetJets.
      Maybe he will scoop up Republic and create a much needed alternative to the flying cattle cars.
      Say, C-series with plush appointments and substantially more room to spread out?
      With my bank account, I am unable to NetJet but I could enjoy a whole plane that is First Class.

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