Republic bankruptcy looms as pilots reject latest offer and mainline partners don’t agree to new deals

Dino D'Amore
By Dino D'Amore August 27, 2015 13:03

Republic bankruptcy looms as pilots reject latest offer and mainline partners don’t agree to new deals

The International Brotherhood of Teamsters (IBT) Local 357 rejected Republic Airways Holdings (RJET) last best and final offer (LBFO), virtually assuring bankruptcy for one of America’s largest regional airlines and sentencing its members to wages that have been frozen since 2007. The offer made to the 2,100 pilots at the company last Friday, was accompanied by numerous warnings that if this contract is rejected as a tentative agreement was voted down in 2014, the carrier may be forced into bankruptcy.

But a failure of the LBFO is not the only reason it would choose bankruptcy.

“Let me be clear, this is no longer just about achieving a new labor deal with our pilots,” said CEO Bryan Bedford during RJET’s earnings call recently. “We now also need to reach consensual modifications with our code share partners and other key stakeholders to be successful on the preferred path. If we are unsuccessful on reaching consensual agreements with the IBT and/or code-share partners and other key stakeholders, we will not hesitate to pursue an alternative path to preserve the maximum value of our airline.”

The question remains, however, what the rank and file will do since it has had since Friday to see how the LBFO stacks up against the rest of the industry. They have a constitutional right to vote and they are being denied that. The other option is for the IBT national office to override the local office’s decision.

Republic’s efforts to renegotiate its mainline contracts are just as interesting as its action with pilots and risky because such moves have not worked in the past. The industry has had to restructure as regional/mainline contracts were recast in the wake of mainline bankruptcies. Older contracts created an industry with 10%- to 20%-margins while post-mainline bankruptcy regional contracts called for only 6% margin. Regionals are often not even getting 6% margins given the performance penalties imposed by mainline partners, even if it is the major carrier cancelling or delaying a flight. It is long past time to reset those contracts as well.

Restructuring has been attempted in the past to bring pilots to heel but adding the codesharing agreements is new to the mix and signals the company has run out of time with other stakeholders as well.

“The LBFO raises the bar,” the company said alluding to pilot deals at the other airlines. “We cannot remain stuck at the crossroads any longer. Our morale has suffered and our people are exhausted. Our codeshare partners – our sole source of revenue – are justifiably frustrated with our performance. Our suppliers and vendors are no longer willing to wait for us to resolve our issues. Our stock price has been battered.”
Read the full article on the future for Republic from Airline Economics’ Kathryn B. Creedy in the forthcoming issue of Airline Economics

Dino D'Amore
By Dino D'Amore August 27, 2015 13:03