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Republic Airways shares plunge 55 percent after warning

July 27, 2015

Republic Airways Holdings Inc. shares plunged 55 percent Monday morning after the Indianapolis-based company slashed its profit outlook and predicted more flight interruptions from an ongoing labor dispute with pilots.

Shares were down 48 percent, to $4.42 each, in heavy trading late Monday morning. At one point, they fell as much as 55 percent—the biggest one-day drop the stock has experienced in Republic's 11 years as a public company.

Talks are under way with American, Delta and United airlines to possibly reduce regional flying the rest of this year and into 2016, Republic said late Friday. The company also disclosed that it hired global advisory firm Seabury Group to evaluate options for its future.

Republic is suffering a dearth of pilots after the U.S. Federal Aviation Administration boosted the required flight experience for first officers by sixfold, to 1,500 hours, and set new limits on duty times, the airline said. Attrition among existing workers has grown because the company hasn’t been able to reach a new labor contract with competitive pay rates.

“The shares have been under significant pressure all year as the market continues to wait for a pilot agreement,” Helane Becker, a Cowen & Co. analyst, said in a written report. “Without that, the employee unrest continues to amplify and reliability of service suffers.”

On Friday, after markets closed, Republic issued preliminary second quarter financial results that were far from those predicted by the company in early May.

The company said it expects to report second quarter profit in the range of $4 million to $5 million, or 8 cents to 10 cents per share, on operating revenue of $338 million to $340 million.

The company’s May outlook predicted profit of 20 cents to 30 cents per share on operating revenue in the range of $345 million to $355 million.

For the full year, Republic reduced its earnings-per-share outlook from $1.05 to 35 cents.

Republic cited the shortage of pilots and a failure to reach a new contract with cockpit crews, and predicted more disruptions in the flights it makes for larger airlines.

"The company has initiated discussions with our mainline partners to take the necessary actions to both temporarily and permanently reduce scheduled flying commitments for the remainder of 2015 and the first half of 2016,” Republic said in a written statement. “In light of the anticipated fleet reductions, the company is rescinding all previously issued financial and operational guidance.”

Deutsche Bank analyst Michael Linenberg on Monday downgraded the rating on Republic from “Buy” to “Hold”

Republic owns Republic Airlines and Shuttle America, and operates flights for American Eagle, Delta Connection and United Express. The company has been in contract negotiations over pilot compensation with the Teamsters since 2007.

The Teamsters recently sued Republic for trying to increase pilot pay outside the contract.

Republic’s lack of specifics about New York-based Seabury’s role probably contributed to the shares’ decline, said Bob McAdoo, an Imperial Capital LLC analyst in Los Angeles. Seabury’s services include overseeing airline sales, restructurings and bankruptcies, aircraft orders and debt.

“It’s the uncertainty because there was a mention of Seabury, but no additional details,” McAdoo said. “That’s the thing that probably makes people most nervous. Seabury comes in for a variety of things, some of which are good and some of which are not good.”

American Airlines Group Inc. is working with Republic “on some minor schedule adjustments that will have a minimal impact on our customers,” said Martha Thomas, a spokeswoman for American. Republic flies 105 of the 550 aircraft operated by 10 smaller carriers used by American and merger partner US Airways for regional flights, she said.

United Continental Holdings Inc. and Delta Air Lines Inc. didn’t immediately return calls about Republic.
 

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