Story ID: GPembRepublic03032016
Embraer Makes Provision For Republic Bankruptcy
By: Gregory Polek
Caption: Executives see no delivery disruptions, however, saying that United Express carriers could take E175s intended for Republic Airways.
Word Count: 336
Embraer recorded a $101 million provision in its fourth quarter results related to the February 25 bankruptcy of Indianapolis-based Republic Airways, resulting in a fourth quarter profit that fell short of analysts’ estimates. Embraer’s commercial aviation business produced a 10.4 percent operating margin for the quarter, compared with a 13.4 percent margin excluding the Republic bankruptcy provision.

Speaking during the company’s year-end earnings call, Embraer CEO Frederico Curado and CFO Jose Filippo downplayed the company’s exposure to the bankruptcy, however, each expressing confidence that all 24 undelivered E175 regional jets on Republic’s books will find their way to other operators if Republic cannot take them. Filippo reported that schedules call for delivery to Republic of nine E175s between August and December and another 15 next year, all associated with a capacity purchase agreement with United Airlines.

“United has a big need for these aircraft,” said Filippo. “So be it Republic or be it another regional airline, we believe that we will deliver these aircraft. It’s still a little bit early to say what will be the structure or the format because of the Chapter 11 [filing], but we are working on this now and as the next delivery is in August we have time to structure something.”

Curado added that Republic told Embraer that it does want the E175s. “We do not see airplanes exiting the Republic fleet,” said the CEO. “Actually we don’t see them even waiving deliveries they have in backlog. So we believe those airplanes will be delivered, hopefully to Republic, but if not I think other alternatives will show up.”

Republic’s restructuring strategy centers on operating a single aircraft type, added Filippo, meaning it intends to shed its aging 50-seat ERJ-145s and Bombardier Q400s, neither to which Embraer has direct exposure. “Republic’s restructuring is all about the 50-seater, it’s not at all about the 76-seater, so it will be a single-aircraft operator going forward,” he concluded.