Pilots Union Files Court Objection To American Republic Capacity Purchase Agreements

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Pilots Union Files Court Objection To American Republic Capacity Purchase Agreements

By Bill Goldston

February 10, 2013 - The Air Line Pilots Association, Int’l. (ALPA), the union that represents the American Eagle pilots, filed a formal objection on Thursday to the capacity purchase agreement recently announced between American Airlines and Republic Airways.

The objection was filed in the United States Bankruptcy Court for the Southern District of New York.

Over the years legacy airlines have been able to increase their capacity and revenue by contracting with regional type airlines which typically operate smaller jets (under 70 seats). These agreements or contracts are known as "capacity purchase agreements".

The proposed agreement between American and Republic would severely divert the flying of large regional jets to a competitor and would needlessly undermine the value of American Eagle, threatening the livelihood of Eagle’s pilots and other employees at the airline. American Eagle, a wholly owned subsidiary of AMR, has provided the substantial majority of regional flying for American Airlines, which is also an AMR subsidiary.

“The Eagle pilots negotiated and approved a labor agreement that provides Eagle with market-competitive labor rates for the next eight years,” said Tony Gutierrez, chairman of the Eagle unit of ALPA. “This potential deal signifies AMR’s huge and unnecessary commitment to a third-party company at the expense of its own employees. If this transaction is approved, it is unclear whether a viable number of large regional jet opportunities for American would remain available to Eagle.”

In December, the bankruptcy court approved a long-term collective bargaining agreement between ALPA and Eagle that met cost-savings targets that Eagle management and AMR represented as necessary for Eagle to position itself as competitive in the regional airline industry. In the pilots’ collective bargaining agreement, Eagle management has committed to “aggressively seek to increase flying opportunities when it is economical, practical and feasible to do so, including, but not limited to, bidding on opportunities to provide additional feed to American Airlines.”

Under the proposed agreement, Republic would operate large regional jets (53 Embraer E175 aircraft) under the American Eagle brand with service to start in June 2013 and continue to increase through 2015. The agreement will then extend through 2027, as it will run for 12 years from each of the covered aircraft’s entry into service.

“Given the lack of disclosure of the economic considerations that led to this contract, the relationship of this agreement to AMR’s strategic choices, and the lack of consideration for Eagle’s interests, we believe that the Court should decline to approve the Republic motion,” states the objection submitted by ALPA.

Republic Airlines is a regional airline subsidiary of Republic Airways Holdings that operates service as US Airways Express, Frontier Airlines and United Express using a fleet of Bombardier Q400NextGen, Embraer 170, Embraer 175 and Embraer 190 aircraft. It is headquartered in Indianapolis, Indiana. The airline is expected to operate service as American Eagle beginning in mid-2013.

A legacy carrier, in the United States, is an airline that had established interstate routes by the time of the route liberalization which was permitted by the Airline Deregulation Act of 1978 and was thus directly affected by that act. It is distinct from a low-cost carrier, (a term fostered as a form of disparagement against post deregulation start-up air carriers, and the traditional airlines once heavily unionized work groups) which in the United States are generally new airlines that were started to compete in the newly deregulated industry.

Typical characteristics of legacy carriers are that they provide a higher level of services than a low-cost carrier; for example, a legacy carrier typically offers first class and/or business class, a frequent-flyer program, airport lounges, and is a member of an airline alliance through which it has partners that agree to provide these services to its passengers as well. Also, there is a higher level of services in the cabin, such as meal service and in-flight entertainment.