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Republic warns of Chapter 11 option if pilots reject contract

August 24, 2015

Republic Airways Holdings Inc., struggling with a pilot shortage as it works to reach a new contract, said the company may have to seek bankruptcy protection if its latest labor proposal fails.

While the Indianapolis-based regional airline wants to secure an agreement, the alternative is court-supervised restructuring, said Matt Koscal, vice president of human resources.

Chapter 11, which protects a company from creditors while it reorganizes, is one possible type of restructuring, Koscal said Friday.

“That’s not what we’re focused on right now, but we feel it’s fair for us to explain to all our employee groups where we stand as an organization,” Koscal said in an interview. “The status quo is no longer an option.”

Koscal’s comments amplified an online letter to pilots in which eight Republic executives said a contract rejection would force it to consider “non-consensual restructuring.” The language was the strongest yet from Indianapolis-based Republic in urging approval of a deal after talks dating to 2007.

Jim Clark, president of Teamsters Local 357, said the union wouldn’t comment on the proposal. Union leaders will evaluate the offer and determine whether to send it to pilots for a vote early next week, according to Clark, who said a ratified contract still may not alleviate the airline’s pilot shortage.

“We could approve this and they could still restructure,” said Clark. “There is an issue with the pilots and it’s not going to go away overnight.”

Stock falls

Republic shares fell 5.3 percent on Friday and were down another 3.4 percent Monday, to $3.30 each. The stock is down 77 percent since the beginning of the year.

The airline has been renegotiating flying contracts with the companies for which it operates regional aircraft—American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc. Republic has cited a lack of pilots for forcing it to scale back on some flying.

Under Republican’s latest contract offer, which it presented to pilots Thursday, new first officers would receive a 74-percent pay increase, with a smaller raise for more-senior aviators. The agreement also would give pilots a ratification bonus of $1,000 to $11,000 based on length of service, as well as another bonus on the one-year anniversary of ratification.

Under the contract, Republic pilots would move to at or near the top of the regional airline industry, said Kit Darby, an aviation consultant in Atlanta who charts pilot pay.

Republic executives told the pilots that the stalemate with pilots couldn’t continue. While the airline has remained profitable, the stock plunged 75 percent this year through Thursday.

“We cannot remain stuck at the crossroads any longer,” the executives wrote. “Our morale has suffered and our people are exhausted. Our code-share partners—our sole source of revenue—are justifiably frustrated with our performance. Our suppliers and vendors are no longer willing to wait for us to resolve our issues. Our stock price has been battered.”

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