FlameNSky

It will be interesting how this all pans out.


Link to Article: Bloomberg


November 5, 2015 — 2:16 PM CST

Republic Airways, one of the largest players in the regional airline business, escaped a bankruptcy filing recently when its 2,100 pilots accepted a new three-year contract. Republic executives call that agreement a cornerstone of their effort to rebuild an airline decimated by pilot shortages.

With that deal in hand, Republic is now telling its biggest customers: You need to step up. But can it get American, Delta, and United to lighten its flying load and help fund the $40-an-hour starting salary it now pays new pilot hires—the new top in the regional industry?

“Republic has serious challenges that we must still address and several quarters of recovery and rebuilding ahead of us," Chief Executive Officer Bryan Bedford said today on a call with analysts, outlining a quarter in which pretax income plunged 73 percent to $8 million from a year earlier, aggravated by less flying. The company, which has 240 jets and about 1,250 daily flights, is working to remove 50-seat Embraer jets and Bombardier Q400 turboprops from its fleet as airlines shift to larger, more efficient regional jets. Its shares were down 10 percent late in the trading session, part of a 64 percent decline this year.

The new compensation course at Republic shows one of the critical issues regional carriers are now facing as they try to maneuver the tough mandate Congress imposed in 2013 requiring more flying hours before commercial pilots can take the yoke. Lawmakers were driven to the new flight-hour rules mostly by the 2009 crash of a Colgan Air regional flight near Buffalo. That case revealed lapses in the pilots’ training and rest before the flight, and shocked many with the low pay endemic in the regional industry.
Despite the higher pay, Republic will still struggle to fill its pilot ranks, Bedford said, given the U.S. rules on minimum flight hours for pilots and the hiring of regional pilots by American, Delta, and United, as well as by cargo airlines. Pilots at the major carriers have a mandatory retirement age of 65; the legacy carriers are also not getting as many military aviators as they once did.
The “watershed event” of making peace with the pilots means the Indianapolis company can now attract greater numbers of aviators and begin arguing its financial case with its big customers, Bedford said. The company’s prior contract with pilots expired in October 2007.

Yet amid all this restructuring of flying contracts, Republic executives clearly signaled today that Chapter 11 (dubbed Plan B inside the company) remains an option if deals with the Big Three (Plan A) can't be reached.

The negotiations won’t be easy. One of Republic’s customers, Delta, sued Republic on Oct. 5, accusing it of breach of contract for not fulfilling its flight schedule for Delta and costing the airline “millions in lost profits” it says it would have earned from the flights. Republic, which operates 71 regional jets for Delta Connection, called the allegations “unfounded and without merit” and says its contracts allow it to recover about one-third of the higher labor costs, and that it will ask some airlines to pay more than they are contractually obligated to pay.
The new three-year pilot contract at Republic that offers starting pay of $40 an hour—$17.05 more than the past level—will cost about $150 million over the full period, including bonuses of $1,000 to $11,000, depending on service time with the airline. In late 2016, Republic will pay a second bonus of $5,000 to $10,000 per pilot. The new contract includes more favorable work rules and faster paths for advancing, Republic said.

The new pay is “certainly a paradigm shift from the 23 bucks we used to be paying,” Bedford said. The revamped salary structure is also designed to make a flying career more attractive for young people.

To do that—and to keep regional flying a part of U.S. air transport—big carriers are likely to pay more for the regional flying they contract. That would represent a radical change in a business that's always been about landing the lowest bidder.

N927EV

American just spent the past 3 years whipsawing its wholly owned regionals into sub par contracts. I can't speak for delta and United, but I wish RAH luck with AA.

amcnd

Not sure how agreeing to pay then going to your boss and saying you need more money because you gave yourself a raise works... This will be interesting.

FreighterGuyNow

50 % of all mainline AA new hires are flows. No interview just show up.

$20 bucks an hour will attract all they need to fill classes at Eagle.

Republic, even at $40 is not a viable alternative.

RawHide

Almost correct 50% of AA new hires are envoy flows, plus 3 PDT, 5 PSA. Assuming classes of 60 per month 63% of AA new hires are flows. Add military, interns, friends and family, those coming from large jet operators. There is not alot of room for RJ pic.

chrisreedrules

Well duh. Everyone knew that the new pilot contract was only one piece of the puzzle. They still have to get their mainline partners to play ball, and that I'm not so sure of.

Skyler02

The "bosses" have known that pilot costs will have to go up for a very long time. This is no surprise to them. They took advantage of the lost cost pilots for as long as they possibly could. Pilot costs are a cost of doing business in an airline. They were able to get away with absurdly low pilot costs for a few decades but the supply and demand curve has changed. All airline execs have know it was coming for years.

Now there are two options:
1. Pay more for the regional contracts if you want to keep the current business model going and have some of the smaller jet flying contracted out, or
2. Bring the flying back in house.

That's it. Those are the options. They are well aware they will have to pay more for pilots either way.

Loon

This is all orchestrated folks. If you happend to listen to the earnings call yesterday it was evident. BB has a plan. Fleet reductions, severing FFD agreements, shrinking RAH yes; BK NO.
The OP might as well have put the link to the Bloomberg story that the sun rises in the East.
Nothing to see here.

chrisreedrules

Delta and United are going to bring the flying back in house, and AA is going to continue to prop up its regionals at the expense of non-wholly owned regionals. Either way, it will likely be a painful few years for many. Even though ultimately, all of this means more mainline jobs, it isn't like pilots who end up on the street are going to turn right around and have mainline jobs tomorrow.

mr25cents

Yeah, and I think Delta is even more ruthless than AA.