What are the reasons for Republic’s filing for bankruptcy and how will it help them regroup?
Republic Airways, based in Indianapolis, filed for bankruptcy this past week in an attempt to revitalize its operation. Republic operates a fleet of smaller planes, providing flights for larger airlines, including American Airlines, Delta Air Lines, and United Continental.
Reasons for Republic’s Financial Troubles
Republic blames its financial woes on a lack of pilots, explaining that this is the primary reason for its failure to succeed during a period when most major airlines are doing remarkably well. According to its report, even though it signed a three-year union contract with its pilots last year, the company still had to ground aircraft while renegotiating agreements with larger carriers and re-establishing the terms of leases for its aircraft.
The Pilot Problem
During negotiation of its labor contract, Republic states that it was losing about 40 pilots every month, but adding only 30. Dan Akins, an aviation consultant involved in the negotiations between Republic and the pilots’ union, the International Brotherhood of Teamsters, explains that while the new contract did stabilize the pilot base, the resulting higher pay for pilots meant Republic had to get increased compensation from Delta, American, and United. Akins view is that Republic turned to bankruptcy as a last resort to coerce the three major airlines to pay the higher fees it required, though he believes “they did not want to do it.”
All of this was complicated by the fact that the U.S. Federal Aviation Administration (FAA) increased required flight experience sixfold for first officers during this same period. Since first officer pilots now must have 1500 hours of flight experience, and the FAA set new limits on duty times, the process of hiring qualified pilots has become even more difficult.
The Need for Bankruptcy
Bankruptcy is never the first choice, but it can be a company’s salvation. Under bankruptcy protection, Republic can request that the judge cancel unprofitable contracts, and will also permit Republic to escape leases for planes that are too expensive or planes that it’s not actually flying. As Republic’s Chairman and CEO Bryan Bedford stated, ” It’s become clear that this process has reached an impasse and that any further delay would unnecessarily waste valuable resources of the enterprise.”
Recent History of Airline Bankruptcies in the U.S
Republic’s filing for bankruptcy is not unprecedented, though it is the first filing by a large airline since American went into Chapter 11 in 2011 and Feeder Pinnacle Airlines filed for court protection in 2012. Other major airlines, far from having financial difficulties, have reported major profits during recent years.
Bankruptcy Provides Hope, Not Certainty
Like so many businesses in similar straits, Republic hopes that by filing for bankruptcy it can ensure a bright future, though, as CEO Bedford recently notified his employees, he “can’t promise how it will all work out.”
If your business is in financial difficulty, for whatever reason, and you are considering bankruptcy proceedings, you should contact a reputable, experienced bankruptcy attorney to help you weigh your options.