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Republic Airways Holdings

Why Republic Airways filed for bankruptcy even though it's profitable

James Briggs
The Indianapolis Star
Indianapolis-based Republic Airways Holdings and 2,100 pilots with Teamsters Local 357 have reached a tentative agreement that pilots. The union's members have until Oct. 27, 2015,  to accept or reject the pact.

You might not have heard of Republic Airways. But if you fly often, you've probably traveled on one of its planes.

If you book a Delta Air Lines flight from Indianapolis to, say, Detroit, there's a chance you'll fly Republic. That's because major carriers outsource their small regional flights to Republic and a handful of its competitors.

Regional airlines service half of the commercial flights in the U.S. Those are the flights that usually have 76 or fewer seats on them and travel short distances, often to small and midsize cities. Republic is the second-largest regional carrier behind Utah-based SkyWest Airlines.

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LOCAL REPORTRepublic Airways files for bankruptcy protection (Indianapolis Star)

When Indianapolis-based Republic Airways Holdings filed for Chapter 11 bankruptcy protection Thursday, it wasn't because the company is collapsing or the regional airline model is obsolete. It was because Republic for years hasn't had enough pilots to cover all the flights it has committed to. In addition, Republic is leasing too many small planes — particularly 50-seaters — that are uneconomical to fly and have fallen out of favor with major airlines.

As a result, Republic filed for bankruptcy despite being a relatively healthy company that has reported a profit for eight straight quarters.

Regional outfit Republic Airways files for bankruptcy protection

"Essentially, they're trying to find a way to right-size their business, both in terms of the number of airplanes they have and the types of airplanes they operate," said Henry Harteveldt, a travel industry analyst and founder of Atmosphere Research Group. "Republic is not entirely in control of its own destiny, because it does work for hire on behalf of its larger airline clients. So, Republic has to have the right number of pilots and the right number of airplanes and the right mix of those airplanes."

Republic executives have determined they can't meet either of those goals without court-supervised restructuring.

"It’s become clear that this process has reached an impasse and that any further delay would unnecessarily waste valuable resources of the enterprise," Republic CEO Bryan Bedford said in a statement issued Thursday. A spokesman for the company declined to elaborate Friday.

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Republic has been losing more pilots than it can hire. Part of the reason stems from a rule Congress passed that raised the required experience level for first officers from 250 hours to 1,500 hours. That rule took effect in August 2013, making it more difficult for airlines to find qualified pilots.

The pilot shortage has disrupted Republic's service. The company in July acknowledged dropping 4% of its flights during the second quarter of 2015 because of the shortage. An ongoing lawsuit from Delta claims Republic failed to meet its promised flight schedule.

Faye Malarkey Black, president of the Regional Airline Association, empathized with Republic's situation.

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“Base salaries for new hires have increased steadily, and many airlines have even offered signing and retention bonuses to attract and retain pilots, yet the number of qualified applicants for jobs at regional airlines is far below demand," she said in a statement to the Indianapolis Star.

Republic also went more than eight years without a labor contract with Teamsters Local 357, which represents more than 2,000 pilots. Republic in October reached a three-year deal with the union that improved pay and benefits, including a $40-an-hour starting salary for new hires. It's unclear whether that contract has helped Republic retain or hire pilots.

A Teamsters spokeswoman declined comment.

Although Republic has committed to maintaining pay and benefits to all employees during its Chapter 11 process, Harteveldt is skeptical Republic can compete against other airlines for pilots.

"I think there are a lot of pilots who will think twice about joining Republic at this point," he said. "Or, if they receive an offer from a competing airline, they would be more likely to take it."

In the third quarter of 2015, the last quarter for which Republic has reported earnings, the company lost 60 pilots per month while hiring 20.

While bankruptcy won't provide a magic solution to Republic's pilot shortage, the company hopes to renegotiate and end bad deals to improve its profit.

The airline estimates it is spending $10 million a month on leases for small, out-of-demand planes that aren't being used. It has a fleet of 241 planes, about 20% of which are 50-seat aircraft that use too much fuel and are scorned by passengers.

Republic also is on the hook for 40 midsize planes it ordered from Bombardier when Republic still owned Frontier Airlines and was planning for expansion. Republic sold Frontier in 2013, leaving it with no use for the estimated $3 billion order for planes that don't fit into its existing operations.

Republic likely will use the Chapter 11 process to try to cancel the Bombardier order. The company also will seek new deals with its partner carriers that are more realistic based on Republic's number of pilots.

"This is not a typical bankruptcy in the sense that this is not a company that would go out of business tomorrow," said Seth Kaplan, the managing partner of Airline Weekly, a trade publication that covers the industry. "They seem to feel that they're on an unsustainable path because they're stuck with all these airplanes and contracts that they just can't find the pilots to (fly)."

If Republic is successful in its restructuring process, Kaplan said it can still be a viable air carrier.

"If they can take care of that 76-seater (market), that's still a good business," Kaplan said. "It might not be what it once was for them when they were more profitable than their mainline partners. But restructuring things, can they be fine going forward? Yeah, they probably can."

In the meantime, you're likely to continue flying Republic — whether you notice its name or not.

"This is not an airline that was on the ropes in terms of its finances," Harteveldt said. "It's a far more complex type of business than some of the larger airlines it serves."

The Indianapolis Star is part of the USA TODAY NETWORK. Stories from USA TODAY's affiliates occasionally are used in Ben Mutzabaugh's Today in the Sky blog. You can follow the author of this story, Indianapolis Star reporter James Briggs on Twitter at @JamesEBriggs.

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