Earlier this week, Republic Airways - a regional airline holding company most travelers have never heard of - filed for Ch. 11 bankruptcy protection.
As I wrote in a post on Thursday, most travelers will not be affected. The flights - Republic Airways operates as United Express, Delta Connection and American Eagle - will go on. Employees will be paid, as will suppliers.
I won't rehash the issues. But a reader sent me a note Republic Airways CEO Bryan Bedford wrote to employees on Thursday about why the company needed to file for bankruptcy.
Read on to see the note.
Dear Republic Associate:
I’m sorry to write with news that our company filed for Chapter 11 bankruptcy protection. This is a disappointing and unwelcome day, but it also represents our best opportunity to stabilize our airline, restore our operational reliability and to secure a brighter future for our associates, codeshare partners, and other key stakeholders.
This filing does not change our strategic goals and it should have little, if any, impact on your day-to-day routines or your relationship to the company. Under the protection of the Court, you can be assured that we will continue to:
- Deliver a safe, clean and reliable product for our customers;
- Provide wages, healthcare and other benefits without interruption;
- Fund our 401(k) contributions on schedule;
- Honor and retain our collective bargaining agreements, and;
- Pay our suppliers and vendors for the goods and services we receive in the ordinary course of business throughout the restructuring process.
While daily routines may not change, this filing is significant for our company. As such, you deserve to know how we got here, what’s next and the goals we’re working towards.
How We Got Here
Everyone reading this letter knows that the regional airline industry is undergoing profound changes, especially in response to the national pilot shortage. We have been forced to ground aircraft, reduce scheduled flying and our financial health has suffered. Although our new pilot contract is a achieving its desired effect and is an important asset of the company, we still need to restructure our codeshare partnership agreements and eliminate the burden of idled, out-of-favor aircraft
Those forces have effectively split our company in two: On the one hand, we are a thriving airline with a fleet of nearly 200 highly desirable EJET aircraft. That airline represents Republic’s future. On the other hand, we also are an airline with over 100 out-of-favor small jet and turboprop aircraft…out-of-favor with pilots and passengers alike. More and more of these unwanted, out-of-favor aircraft are sitting idle yet they are costing us approximately $10 million a month and earning us nothing.
This situation is unsustainable. As successful as our EJET fleet may be, it cannot continue to carry the dead weight of our idled aircraft. Similarly, we must negotiate additional revenue from our codeshare partners that recognizes the true cost of the product, that reflects our value in the marketplace and the value we provide our partners.
We have worked for months with our stakeholders to attempt to restructure the obligations of our out-of-favor aircraft and to increase our codeshare revenues; it has increasingly become clear that this process has come to an impasse and that we can no longer afford to waste our valuable resources. Combined with our loss of revenue during the past several quarters and a decline in our liquidity, we could not allow a stalled negotiating effort to put our core business at risk.
Chapter 11 is not an end, but is instead a beginning. It will stem the drain on our finances and provide us with both the time and an orderly framework to conclude our restructuring successfully. Our board, the management team and our independent advisors firmly believe that the airline, our associates, partners, passengers, creditors, shareholders and our other stakeholders – including the communities we serve – will be best served by an orderly, court-supervised restructuring. We have entered this process with a strong core business and the liquidity necessary to carry out our restructuring plan. The result will position Republic as the world’s largest – and preferred – operator of EJETs. Along with our 6,000 dedicated aviation professionals, we believe this plan will restore us to our historic place atop the regional airline industry.
It’s difficult to know with certainty how long this process will take, but there are reasons to be optimistic on this point. First, unlike others who have filed in our industry, we have no interest in seeking labor concessions or rejecting any collective bargaining agreements. Second, we have entered Chapter 11 with clear, attainable goals already defined. Finally, some of our largest stakeholders in this case are our codeshare partners who should have every interest in seeing us emerge as quickly – and as strongly – as possible.
Several months ago, we identified four objectives for a consensual, out-of-court restructuring including:
- Amended agreements with our codeshare partners that reflect the true costs of our product and that allow the orderly restoration and transition of our fleet;
- An early return of out-of-favor aircraft (Q400 and ERJ-145 with reasonable and fair compensation);
- Streamlined operations around a single aircraft type (EJET) under a single operating certificate, and;
- Additional liquidity to fund long-term opportunities.
These remain our objectives and we will work with our external stakeholders to effect this plan. It will simply be an in-court plan vs. an out-of-court plan.
While Chapter 11 provides a process and a degree of predictability to our restructuring, it would be disingenuous to say it will be easy. In truth, we need to be more united than ever, to support each other more than ever and to deliver – more than ever – safe, clean, and reliable service to our codeshare partners every day. Now more than ever, we need to show our value to our codeshare partners and to the flying public. The people of Republic are among the best in the business; I know that each of us will stay focused on providing exceptional service and safety as we navigate this process together.
Many of you know I lean heavily on my faith, especially in times like these. I have been greatly comforted these days by the words James the Just wrote to scattered tribes: “Consider it all joy, my brothers, when you encounter various trials. For you know that the testing of your faith produces perseverance.”
Surely, James must have foreseen the creation of the airline industry.
I’ve been in this business for nearly 30 years. During that time, I’ve seen lots of airlines go through bankruptcy (including each of our flying partners), but this is the first time I’ve been inside the process. Like you, I’m deeply disappointed. Along with every member of our management team, I fervently wish we could have found a viable solution outside of the courthouse. Now that we are here, however, we will make full use of the process in order to secure the future viability of our airline. Our faith may be tested but our perseverance is limitless. I believe this with all my heart.
As we move forward, please remain focused on safety, reliability and delivering outstanding customer service to our guests and to one another.