Expansion and Republic Airways and Job Creation and Transportation, Distribution & Logistics

Republic Airways expects to add at least 1,000 jobs in 2007

July 31, 2006

Republic Airways Holdings plans to add more than 1,000 jobs, including some at its Indianapolis headquarters, thanks to a deal to fly larger aircraft for US Airways and its first contract to fly for Continental Airlines.

The regional airline has also seen an uptick in its stock and gotten upgrades from analysts since striking the Continental deal July 21 and amending its agreement with US Airways July 24.

Republic employs 3,300 nationwide, 1,400 of those in Indianapolis.

"There will be job growth in Indianapolis," said Republic CEO Bryan Bedford, while in Scotland late this month to chase additional bank financing for the fast-growing regional carrier. Republic is parent of Chautauqua Airlines and Republic Airline. Continental becomes its fifth major airline partner when service begins in January.

Bedford declined to quantify how many jobs could be added in Indianapolis. Its main offices and a flight-crew-training center are on the northwest side. It also has an aircraft repair operation at the former United Airlines maintenance base at Indianapolis International Airport.

Generally, each 50-seat Embraer 145 aircraft Republic adds to its fleet involves 22 jobs. That number jumps to 26 for the larger Embraer 170 and 175 models that carry as many as 86 passengers.

Republic said it would replace early next year 20 existing ERJ-145s it now flies for U.S. Airways with the new ERJ-175.

Republic also is acquiring 10 more ERJ-175s to replace other planes or be used for growth in 2008, the company said.

Under the Continental deal, Republic in January will begin flying 44 ERJ-145s, taking over some of the Continental routes now flown by Houston-based ExpressJet.

In all, "this is going to be over 1,000 jobs. What makes these deals so great is the fact that we're moving 20 [Embraer] 145s out of US Airways flying into a new relationship," said Warren Wilkinson, vice president of corporate development.

"We don't have to add a lot of cost" that way, Bedford said.

Although none of the carriers would elaborate on terms of the two new agreements, "the contribution of the deals is certainly going to be in the hundreds of millions of dollars" in revenue, Bedford said.

Republic had 2005 revenue of $905 million and profit of $60.7 million. That compares with $541 million and $45 million in 2004.

The stock has risen about 27 percent over the last year.

On July 26, both Calyon Securities and KeyBanc Capital Markets upgraded their outlooks on Republic to "buy" from "add" and "hold" recommendations.

"The winning of Continental as a new partner alleviates concerns we had about [Republic's] revenue growth potential after 2006," said a recent report by Standard & Poor's.

It has been concerned about Republic's dependence on a relatively small number of major airlines, most of which have been restructuring.

Republic currently flies express service for American Airlines, Delta Air Lines, United Airlines and US Airways.

Landing Continental as its fifth airline partner--the largest number of partners of any regional carrier--gives Republic some leverage in negotiations with the big airlines, said Tim Sieber, vice president and general manager of The Boyd Group, an Evergreen, Colo., aviation consulting firm.

"When you're a small jet operator like this, polygamy is a good thing," he said.

Use of larger aircraft such as the ERJ-170/175 allows Republic to vie for longer routes, those two hours and longer. Sieber recently flew on an ERJ-170 from Indianapolis to Denver--something many passengers wouldn't tolerate in a relatively cramped, 50-seat ERJ-145.

There are indications the 50-seat aircraft is "a stagnant, if not a smaller, market" going forward, Sieber added.

Prospects for airlines have improved in recent months, partly as the result of restructurings, a series of fare hikes since April 2005, and fleet cutbacks that have packed planes and generated a higher return per trip.

"The majors have kind of reined in their capacity growth so they're not beating each other up as much," said Clark Orsky, an analyst at Montpelier, Vt.-based KDP Investment Advisors. "The environment, all things considered, is pretty decent."

But high fuel prices are the wild card in the equation and "it remains to be seen if they maintain their discipline going into next year on the capacity side."

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