Republic Airways Holdings plans to pressure its maintenance and parts suppliers into lowering their charges or face the prospect of the carrier parking more of its aircraft, says Chairman and CEO Bryan Bedford.
Parking the aircraft, presumably to the extent that its contracts to fly them for major airline partners allow it, would cost Republic money. The parent company of regional providers Chautauqua Airlines, Republic Airlines andand branded carrier Frontier Airlines incurred $2.7 million in expenses in the fourth quarter for temporarily parked aircraft, nearly a dozen of which were Embraer ERJ-145s.
“It’s an expense headwind to park airplanes,” Bedford conceded in an interview with Aviation Week Thursday after Republic reported its fourth-quarter earnings. But Bedford says Republic is “absolutely” prepared to do that, which he seems to intend as a message to suppliers.
If Republic parks the planes, the suppliers will lose essentially all of their Republic maintenance revenue, Bedford says. “Our suppliers,” he says, “have to decide whether this is a business they want to continue to participate in.”
Bedford says Republic currently operates about 65 small regional jets that are not productive or cost-efficient and which are considered part of its “long-term portfolio.” Most of the aircraft are 50-seat Embraers, although it also owns 11 44-seat ERJ-140s. It owns 22 of its ERJ-145s and one 37-seat ERJ-135. Another eight of its ERJ-145s are subleased to foreign carriers.
Republic recently said that capacity purchase agreement contracts with major airline partners will expire on about half of its ERJ-145s in the next three years.
Bedford says he expects it to take about a year to work out new agreements with the suppliers on services such as component repairs and replacement parts. Concurrently, Republic will negotiate to lower its ownership costs on the aircraft.
Bedford says Republic cannot reasonably expect its airline partners to increase the rates they are paying Republic to operate the aircraft, although it would be nice. Republic is in this bind—as are other regional carriers with 50-seat aircraft—because airline partners in bankruptcy renegotiated the contracts to include caps on future rate increases.
For all regionals, 50-seat jets are an issue not only because of costs and rates, but also because higher jet fuel costs have made them unprofitable for airline partners on many routes. Major airlines likely also used them because of scope clauses in contracts with their pilots that prevented them from outsourcing flying on bigger planes, even when a bigger regional jet might have been a better fit. But many of those scope clauses have since been relaxed to allow larger regional jets to be used on the routes.
Of about 1,100 50-seaters in the market today, Republic believes major carriers still need about 600 to 700 of them—and that number is probably closer to 600 than 700, he says. Major airline consolidation, the closing of “marginal” airline hubs and perhaps further relaxation of scope clauses have exacted a toll.