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Pilot shortage hitting Republic's bottom line

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 A pilot shortage has forced smaller airlines to cancel flights and ground jets, a side effect of federal regulations that have dramatically increased the minimum number of flight hours required for new pilots.

The labor shortages and service cuts have hit first and most sharply at the regional airlines that ferry passengers from small markets on behalf of bigger carriers.

One of the largest regionals, Indianapolis-based Republic Airways Holdings, plans to stop flying 27 of its 41 Embraer 50-seat jets because of the pilot shortage. That decision will lower income as much as $22 million this year, Republic said Tuesday in a regulatory filing.

In 2010, Congress mandated that airlines’ first officers would need to hold an Airline Transport Pilot certificate–which requires at least 1,500 flight hours (PDF)–as opposed to the 250 hours and commercial pilot certificate previously required. The new rules, which took effect in August, came in response to the 2009 crash of a Continental Express regional flight, which investigators linked to shortcomings in the pilots’ training.

Hearings on the accident also exposed to many observers—including members of Congress—the surprisingly low pay at regional airlines. The regional side of the U.S. airline industry has long been a fiercely competitive arena in which the big airlines auction large sections of their flight schedules to the lowest bidder. That’s put pressure on wages: The starting salary for a first officer at a regional airline is a little more than $21,000 per year—about $40,000 lower than the same job at Delta and United, according to the Air Line Pilots Association, the largest U.S. pilot union.

And the stingy pay, in turn, exacerbates the pilot shortage. Not only does it make pilot jobs less appealing, but the small salaries also combine with the more onerous federal training rules to put many new pilots deep in debt. Paying for the necessary hours of training flights before getting a first job can cost more than $100,000.

“There may be a shortage of qualified pilots who are willing to fly for U.S. airlines because of the industry’s recent history of instability, poor pay, and benefits,” ALPA President Lee Moak said last week in a statement that aimed to refute the “myth” of such a shortage. The union says that Emirates Airlines pays new first officers $82,000, “plus a housing allowance and other extraordinary benefits,” and that thousands of U.S. pilots on furlough and working abroad are “eager to return to U.S. airline cockpits—under the right conditions.”

Flight cuts caused by the pilot shortage have rippled from the tiniest of airlines to major hubs. Wyoming-based Great Lakes Airlines ended service (PDF) to a half-dozen small towns on Feb. 1 after seeing its pilot ranks slashed from more than 300 to fewer than 100. United, meanwhile, explained the recent plan to dismantle its Cleveland hub in part by pointing to the inability of regional carriers to staff all of its flights there.

In some cases the bigger airlines, with better salaries, are cannibalizing the lower-paid workforce of their regional partners. “Many of the mainline carriers will hire away pilots to meet their capacity needs coming at a time where the pilot pool continues to shrink,” Cowen & Co. analyst Helane Becker wrote in a client note. “As a result of the limited pilot availability we expect to see reduced flying by the regional carriers and pilot wages increase.”

The new minimum hours are coming as U.S. airlines grapple with other regulations requiring more pilot rest. The industry also has a mandatory retirement age of 65, which has caused large airlines to replace their pilot ranks by hiring from the regionals.

The grim outlook for regional airline profits is also showing up in their stock prices. Shares of Republic fell 4 percent, to $9.45 each, Tuesday and are off almost 15 percent this year. Another large regional carrier, SkyWest, dropped 2 percent and has declined 19 percent in 2014.
 

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  • I have those 1500 Hours
    I'm here Republic, I do have all the minimums including ATP. Don't you dare to lose those 22 million in income, just pay me 45K a year at least and I'll do it.
  • Inefficient
    They would like to retire those 50 seat aircraft anyway. They are terribly Inefficient and costly compared to their 70 seat counterparts. They are just using pilot shortage for sensational effects.
  • "Shortage"?
    There might by a shortage of pilots willing to work for $21,000, but that doesn't mean there is a shortage of people who want to be pilots and are willing to acquire the necessary training to meet the higher standard. They just aren't willing to do it for such a low salary. If it costs >$100,000 to get the training, it's a no brainer why Republic can't get enough pilots to start at a $21,000 salary. Heck, you can get an MBA for less than 100k. Delta, American, etc, do not have a problem. The fact is if you want a well-trained pilot to operate flights safely, you have to pay them commensurate with their training and experience. I watched the Frontline documentary about the Colgan crash and it was scary how poorly trained and paid those pilots were.

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  1. The $104K to CRC would go toward debts service on $486M of existing debt they already have from other things outside this project. Keystone buys the bonds for 3.8M from CRC, and CRC in turn pays for the parking and site work, and some time later CRC buys them back (with interest) from the projected annual property tax revenue from the entire TIF district (est. $415K / yr. from just this property, plus more from all the other property in the TIF district), which in theory would be about a 10-year term, give-or-take. CRC is basically betting on the future, that property values will increase, driving up the tax revenue to the limit of the annual increase cap on commercial property (I think that's 3%). It should be noted that Keystone can't print money (unlike the Federal Treasury) so commercial property tax can only come from consumers, in this case the apartment renters and consumers of the goods and services offered by the ground floor retailers, and employees in the form of lower non-mandatory compensation items, such as bonuses, benefits, 401K match, etc.

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