Strategy

Republic Airways Lands in Chapter 11

The short-haul carrier says bankruptcy will allow it to renegotiate agreements with the larger airlines for which it provides regional flights.
Matthew HellerFebruary 26, 2016

Republic Airways has filed for bankruptcy protection, citing pilot shortages that have forced it to ground aircraft as it renegotiates agreements with larger airlines for which it operates regional flights.

The bankruptcy process will allow Republic to continue normal business operations while restructuring its finances and contractual relationships, the airline said. Republic operates a fleet of smaller planes that provide flights for larger airlines including American Airlines, Delta,. and United.

The Chapter 11 filing “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 CEO Bryan Bedford said in a news release.

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In October, Republic reached a new three-year labor agreement with its pilots after years of talks. The deal has enabled the airline to stem pilot attrition and increase new pilot hiring but it has also increased labor costs significantly.

Republic’s talks with its airline partners and other stakeholders have been aimed in part at securing compensation for the higher costs. “While there has been substantial progress … it has recently become apparent that Republic will not be able to reach agreement with all the necessary parties within a reasonable period of time,” Bedford said in court papers.

Aviation consultant Dan Akins said if Republic was struggling to get airlines to pay higher fees, it may have turned to bankruptcy court to force their hand. “It’s not the preferred path, and I know they did not want to do it,” he told Bloomberg.

In bankruptcy, Republic could ask a judge to cancel unprofitable contracts without the penalties that would be imposed without court protection.

The filing is the first by a major U.S. airline since American went into Chapter 11 in 2011. Pilot shortages have been caused by new restrictions on pilots’ flying hours and tougher training requirements.

“We believe this action will allow us to restore our airline and take it to new heights,” Bedford said.