Shortage of pilots key factor in Republic’s Chapter 11 filing

A Republic Airlines regional jet operating as American Eagle.
A Republic Airlines regional jet operating as American Eagle.

The move by Republic Airways Holdings to petition for Chapter 11 bankruptcy protection on Feb. 25 was strategic as much as it was financial.

Still, industry analysts say it portends a quicker contraction in the regional U.S. flight network as the pilot shortage becomes more acute.

“This is not a flu; this is like a cancer that is spreading,” said Dan Akins, a consultant and transportation economist who specializes in the pilot shortage issue.

With its petition, Republic, which flies regional routes under contracts with American, Delta and United, became the third small U.S. airline to seek bankruptcy protection since September.

New England-based Island Airlines ceased operations in December after more than two decades in business.

Two months later, Oregon-based SeaPort Airlines filed a petition for Chapter 11 reorganization, citing the pilot shortage, which has forced the carrier to substantially reduce its route network and to delay the commencement of new routes.

But those airlines pale in size to Republic, which operates a fleet of 242 planes under the American Eagle, Delta Connections and United Express liveries, making it the second-largest regional airline in the U.S., behind SkyWest. According to its Feb. 25 filing, Republic operates approximately 1,000 flights daily to 105 cities in 38 states as well as Canada, the Bahamas and the Caribbean. Republic provides just under 3.5% of all seats in the domestic airline industry.

Republic filed for Chapter 11 status even as it remained profitable. In the third quarter of last year, the most recent for which the airline had released an earnings statement, Republic recorded net income of $2.9 million. But pilot shortages, driven both by an eight-year labor dispute that ended in October and by the overarching dearth of pilots coming through the U.S. training pipeline, forced Republic to reduce capacity by 11% during 2015.

Analysts expect the pilot shortage to get worse. An estimated 13,000 to 15,000 pilots at American, Delta, Southwest and United will retire between now and 2022, and their ranks will be filled to a significant degree by regional pilots.

Underutilization of aircraft cost the company approximately $10 million during both the second and third quarters of 2015. And, suffering from pilot attrition, the airline reported that during the second quarter it idled 16 out of 41 50-seat Embraer 145 jets even though last April Delta extended its contract with Republic for 50-seat service.

For now, Republic will continue to operate its regular route schedule, the company said when it filed for bankruptcy. But as part of the bankruptcy pleadings, CEO Bryan Bedford wrote that the restructuring plan includes retiring 64 aircraft, or more than a quarter of its fleet, including all of its remaining 50-seat planes. Republic instead plans to streamline operations by using only larger, higher-yielding craft, which typically have 76 seats.

Bedford also wrote that Republic had attempted to negotiate higher reimbursements from the major airlines to help pay for the regional-industry-leading compensation package it entered into with pilots in October. Having failed, it will seek those modified agreements under court supervision.

United and American said in emails last week that they did not anticipate any immediate changes to regional operations, and in an interview, Delta spokesman Michael Thomas said that it was business as usual for the airline.

“There isn’t necessarily 100% clarity on how much and what impact this will have,” Thomas said. “That will come out as things move through the bankruptcy process.”

He added that Delta has been reducing its reliance on regional carriers in recent years, with regional craft now making up 38% of the Delta fleet, down from 48% in 2008.

Akins, though, said that Delta is downplaying the impact that a significant contraction at Republic would have.

“Their wholly owned subsidiary Endeavor is paying the highest bonuses in the industry, up to $80,000, and they still can’t get pilots,” he said.

The pilot shortage has been driven by a combination of industry instability in the decade after 9/11, low entry-level pay at regional airlines and a congressionally mandated 2013 rule that increased the minimum time a pilot must have spent in the cockpit in order to fly for a commercial airline from 250 hours to 1,500 hours.

The impact is already being felt at airports serving smaller communities. Recruitment difficulties, combined with an upsizing of the aircraft used by regional carriers, have resulted in a 12% reduction since 2011 in the number of city pairs flown by regional aircraft, according to the airline and airport industry adviser Intervistas Consulting.

Analysts, meanwhile, say they expect the pilot shortage to get worse. An estimated 13,000 to 15,000 pilots at American, Delta, Southwest and United will retire between now and 2022, and their ranks will be filled to a significant degree by regional pilots.

Akins said the fact that Republic couldn’t keep enough pilots on staff to fly its 50-seat planes for Delta even as it reduced its overall fleet size is a sign of things to come. Routes will diminish, he predicted, though not everyone will immediately notice it.

“Spokane loses a flight. Sacramento loses a flight to Denver. It’s a quiet event,” he said.

It’s not just analysts who are sounding the alarm in the aftermath of the Republic filing.

Phoenix-based Mesa Airlines, which by the end of this year will fly 133 aircraft under the United Express and American Eagle labels, has actually seen its fleet size double since coming out of bankruptcy five years ago, CEO Jonathan Ornstein said.

Ornstein attributed the company’s success to the fact that all but one of its planes are of the 76-seat variety. And he said that because it is growing, Mesa has been able to hire pilots away from other regional airlines since it offers the promise of promotions.

Still, he lambasted the 1,500-hour rule as a politically motivated policy that is destroying the regional airline industry.

“If this rule is not changed and it is allowed to continue, you will have less flying to fewer cities with higher fares and less frequent service. There’s no other math,” he said.

Ornstein acknowledged that Mesa could benefit from a Republic contraction, but he said that gives him little comfort.

“I would much rather see that rule changed and Republic not go through this, because I think the general health of the industry would be much better,” he said.


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