Republic Airways Holdings Inc. (Republic Airlines 2nd and Shuttle America) (Indianapolis) has announced its preliminary second quarter 2015 financial results. The company also gave guidance from its perspective on the on-going contract negotiations with its pilots, represented by the IBT. The company also warned of possible operational disruptions.
The Company expects to report second quarter net income of $4.0 to $5.0 million or $0.08 to $0.10 per diluted share, and pretax margins of 2.5% to 3.0% on operating revenues of $338 to $340 million. The second quarter results were negatively impacted by, among other factors, an operation that produced approximately 4% fewer block hours than forecasted due to the ongoing operational disruption caused by regulatory changes and further intensified by our ongoing pilot labor dispute.
National Pilot Shortage and Labor Dispute Continue to Disrupt Operations
The Airline Safety and Federal Aviation Administration (FAA) Extension Act of 2010 directed the FAA to enact significant regulatory changes. The law had several elements, one of which was a change to pilot qualification standards that became effective on August 1, 2013, adding new requirements for first officers to hold an Airline Transport Pilot (ATP) certificate, requiring additional training and a minimum 1,500 hours total flight time as a pilot. Previously, first officers were required to have only a commercial pilot certificate, which required 250 hours of flight time before beginning an FAA approved commercial airline training program. Another element of the law required the FAA to implement more restrictive limits on pilot flight and duty times. The new limits became effective on January 1, 2014 and immediately had the effect of reducing pilot productivity 5-7%, further exacerbating the growing pilot shortage.
The Company’s ongoing labor dispute with the International Brotherhood of Teamsters (IBT), the union which represents the bargaining rights of all Republic pilots, is further amplifying our pilot staffing challenges. The IBT and the Company are currently negotiating under the supervision of the National Mediation Board for an amended collective bargaining agreement. Since April 2015, limited progress has been made in the negotiations due to the IBT’s unrealistic and unsustainable demands. The Company has presented a comprehensive proposal to the IBT that would place our pilots ahead of their peers in the regional airline industry for both compensation and work rules. The lack of a new agreement for our pilots requires the Company to maintain its below market contract and is contributing to increased levels of attrition and an inability for the Company to attract new pilots.
Due to the IBT’s unrealistic bargaining position, the Company cannot predict with any certainty a timeline for resolution. As a result, the Company anticipates continued operational disruption related to the ongoing labor dispute and the growing national pilot labor shortage. 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.
In light of the anticipated fleet reductions, the Company is rescinding all previously issued financial and operational guidance.
On July 9, 2015, the IBT filed suit against the Company alleging that the Company unilaterally increased compensation for its pilots and new hire pilots in violation of the Railway Labor Act. We believe the suit is completely without merit, and the Company will take appropriate steps to respond.
The Company is exploring all of its options to mitigate any adverse impact from these matters and restore its operational and financial performance to normal levels. The Company has engaged Seabury Group as an advisor to assist in these efforts.
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