Republic set to fly 170s for Delta, US Airways

 - October 2, 2006, 11:16 AM

The FAA certainly tested its patience, but Republic Airways appeared likely to win an operating certificate for its new Republic Airlines division in time to launch Embraer 170 service for US Airways and Delta Air Lines early this month.

Under plans first drafted last year and modified to account for an expanded presence within the US Airways network, Republic Airlines will fly the bulk of the 72 Embraer 170s the company expects to have in its possession by the middle of next year, while newly acquired Shuttle America slowly disposes of its Saab 340s in favor of the Brazilian 70-seaters. Meanwhile, Chautauqua Airlines will return to flying only 37- to 50-seat jets, relieving Republic of the burden of paying penalties for violating the scope clause in the American Airlines pilot contract.

Together flying 24 of the 70-seat jets as United Express, Chautauqua Airlines and Shuttle America will assume widely different roles under the new operating structure, as the company reorganizes its various units to satisfy its partners’ union contracts and capacity needs. Acquired by Republic in May for $1 million, Fort Wayne, Ind.-based Shuttle America began flying three Embraer 170s in June and has since assumed an ever more visible role within the company’s network. By the end of November Republic plans to turn Shuttle America into an all-Embraer 170 operator after it casts off the last of its once nine-strong fleet of Saab 340s.

Chautauqua, on the other hand, will see all 20 of its Embraer 170s move off its books by year-end “if not sooner,” according to Republic Airways CEO Bryan Bedford. The last transfer won’t come a moment too soon, as Republic continues to pay penalties for defying a scope clause that restricts American Connection carriers from flying airplanes that hold more than 50 seats for any partner. Along with the Embraer 170s it flies as United Express, Chautauqua flies 100 ERJ 135s, 140s and 145s, including 15 ERJ 140s for American.

Last quarter alone Republic paid AMR $2.8 million in penalties, cutting its year-over-year decline in second-quarter operating expenses by 0.2 cents per available seat mile (ASM). Last quarter expenses equated to 8.2 cents per ASM, compared with 8.9 cents per ASM during the same period a year earlier.

Expansion Progress

In July Republic raised some $105 million in equity with a new public stock offering to help fund its aggressive growth plans for the next year. The airline took three Embraer 170s directly from the factory in Brazil last month for the September 4 launch of US Airways Express operations, and another two for the September 1 start of Embraer 170 service for Delta. Starting in October Republic plans to take the remaining 25 US Airways Express airplanes, at a rate of three per month, from wholly owned US Airways regional unit MidAtlantic Airways as part of the bankrupt major airline’s sale of aircraft, lease positions and airport slots to its regional partner.

By the start of last month most MidAtlantic employees still did not know what might become of their jobs, although Republic has begun training the first of 140 MidAtlantic pilots slated for transfer in order of seniority. However, ALPA has filed a grievance claiming that the transaction constitutes a “change of control” rather than an “asset sale,” in which case, argues ALPA, Republic would have to hire all 300 MidAtlantic pilots and honor the terms of their current contract. If the arbitrator decides against ALPA, the pilots would work under the terms of Republic’s Teamsters contract, the “Jets for Jobs” provision of the US Airways pilot contract would take effect, and Republic would have to give only half the remaining 160 jobs to MidAtlantic pilots.

In what Bedford called the “final phase” of Republic Airlines’ certification process, the company sent the first Republic airplane through conformity inspection on August 2 and on August 9 started proving runs, which typically last between two and three weeks. The first class of eight MidAtlantic pilots started training on July 18, and the second class started August 3. Barring any major unforeseen obstacles, Bedford said, Republic would earn its operating certificate “around the August 26 to 28 time frame.”

For the time being any talk of expansion beyond the 72 seventy-seat E-Jets remains purely speculative, as Republic directs all its attention to the monumental task of putting into service 48 more airplanes for three different partners over the course of the next year. However, Bedford identified “growth shells” within Republic’s contracts for another 16 E-Jets in the second half of next year, and another 18 in 2007 and 2008. In fact, US Airways has broached the subject of placing 90-seat jets on the Republic certificate, conceded Bedford.

“Our investment agreement contemplated the addition of Embraer 190s into the Airways network, so the economics have been negotiated,” he said. “It’s an interesting situation where US Airways is the only legacy carrier today that has the scope authority to outsource 25 Embraer 190s, and it appears it will work well in their network.”

The airlines’ investment agreement calls for the removal of 10 Republic ERJ 145s from the US Airways network in the event Bedford and company choose to add 90-seaters, however. “We made it clear that we’re interested in the 190 business, we obviously enhanced our balance sheet capacity to acquire and finance 190s, but we have to be absolutely certain that we’ve got a home for the 10 small jets that would have to come out,” he cautioned.