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Low Pay at Regional Airlines Fuels Shortage of Aviators; Republic Airways to Idle 27 Planes

A widening shortage of U.S. airline pilots is spotlighting the structure of an industry built on starting salaries for regional-airline pilots that are roughly equivalent to fast-food wages.

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The shortage's toll rose Tuesday, as Republic Airways Holdings Inc., one of the nation's largest regional carriers, said it would remove 27 of its 243 aircraft from operation because it couldn't find enough qualified pilots. The news, which followed service disruptions at other airlines, sent Republic's shares down 4.1% to finish at $9.45.

Starting pilot salaries at 14 U.S. regional carriers average $22,400 a year, according to the largest U.S. pilots union. Some smaller carriers pay as little as $15,000 a year. The latter is about what a full-time worker would earn annually at the $7.25-an-hour federal minimum wage.

Regional carriers are a key link in the U.S. air-travel system. Big airlines, whose pilot salaries are much higher, outsource about half of their domestic flights to these smaller partners to save money.

The big carriers set flight schedules and fares, sell the tickets and buy the fuel, leaving their regional counterparts little room to raise wages.

That structure has prevailed for years, but federal rules implemented in August have brought matters to a head by increasing the minimum flight experience required for most commercial-airline pilots to 1,500 hours from 250 hours. The new law has sharply increased the time and expense required to become a commercial pilot, rendering today's starting wages even less attractive and crimping the already-tight supply of would-be aviators.

Andrew Finne, a 23-year-old senior at Henderson State University in Arkadelphia, Ark., says he has amassed $100,000 in debt to get a four-year aviation degree and 380 hours of flight time. Under the new federal training requirements, he still has two to three years as a flight instructor ahead before he can start flying commercial passengers. He says he hopes he can afford the additional cost, but "I've had several friends drop out because it's too expensive and the outlook for recouping those funds didn't look good."

Some industry watchers say the two-tier pay structure isn't sustainable. Even before the current pilot shortage, many regional carriers were struggling. Several have filed for bankruptcy protection in recent years. The big airlines also have pressured the regionals to shell out for larger jets that are more fuel efficient than the 50-seat jetliners that have long been standard.

"Something's going to [have to] change in the relationship between the majors and the regionals," said Jonathan Kletzel, a transportation consultant at PricewaterhouseCoopers LLP. More regional airlines may fail, he said, and big carriers could have to buy them to maintain short-haul service.

The shortage already is affecting big carriers. United Continental Holdings Inc. said this month that part of the reason it plans to slash flights at its Cleveland hub by 60% this spring is its regional partners' inability to meet the carrier's schedule. Republic is pulling 12 small jets that it flies for United.

A spokeswoman for Airlines for America, which represents the major airlines, said that by historical standards, current levels of pilot hiring by its members are "relatively modest." She said the big airlines work with their regional partners to ensure a reliable, seamless experience for customers traveling from one to the other.

The pilot shortage is being aggravated by rising demand. The major carriers are trying to replace thousands of senior captains who are reaching the mandatory retirement age of 65, primarily by poaching captains from their regional-airline partners.

Republic Chief Executive Bryan Bedford said in an interview that his airline expects to lose 16% of its 2,200 aviators to big airlines this year and will end 2013 about 250 pilots short. "The pipeline [of new pilots] we had in place has been severed" by the new training rules, he said. "Until there's a fix, we'll just continue to see the [air-travel] system shrink."

Some small airlines are raising wages. Silver Airways, a Florida-based airline with 35 planes, said last week that it is offering 10% raises to its co-pilots, 5% raises to its captains, and $6,000 bonuses to existing pilots who stay for a year.

It announced the move after cutting its flights in the first quarter by 13%. The 200 Silver Airways pilots are expected to vote on the contract changes by March.

Sharply raising pilots' starting salaries to attract more applicants could make regional airlines less attractive to their big-airline customers, said John Thomas, global head of the aviation practice at L.E.K. Consulting LLC. "You'd basically put the regional industry out of business if you raised pay," he said.



Other carriers are resorting to different tactics. Great Lakes Aviation Ltd. of Cheyenne, Wyo., said it has 100 pilots, down from 300 just a year ago. It is removing 10 seats from a handful of its 19-seat planes to operate them under different Federal Aviation Administration rules that require pilots to have just 250 hours of experience.

"We have absolutely no ability to attract résumés" from pilots with 1,500 hours of flight time, said Doug Voss, chairman of Great Lakes, whose pilot salaries start at around $16,500 a year.

Quick fixes aren't on the horizon. Industry observers believe repealing or amending the training law is unlikely, largely because it would require an act of Congress. Nor is anyone expecting the withdrawal of a month-old rule that gives pilots more rest, which also has required passenger carriers to boost pilot hiring by about 5%. Both rules were written in response to the 2009 crash of a regional jet that killed 50 people.

Capt. Lee Moak, president of the Air Line Pilots Association, the nation's biggest union for airline pilots, said the major carriers "have to take ownership of this problem." They know their operations are being affected by the lack of regional pilots, he said, and the situation probably will worsen by summer.

He said the chief executives of regional airlines need to admit they "underbid these contracts and can no longer honor them."

Even before the training rules, new pilot numbers were dwindling. The FAA estimates that it issued 54,370 new student-pilot certificates in 2012, a 31% decline from 20 years earlier.

Training to become a commercial pilot can cost more than $100,000. To get the additional flying time they now need, pilots can work as instructors, which also offers meager pay, or pay for the additional time.

Miami-based Eagle Jet International Inc. charges trainees $57 an hour to be co-pilots on its cargo flights, which are under a different regulatory regime than big commercial passenger operations.

Eagle Jet President Richard Gabor said his training programs are full, with about 80 trainees at a time—largely students whose parents pay. The new training rules are good for his company, he said, but "bad for the industry.

New pilots bank on their incomes growing over time. After five years, the average regional copilot still earns only $35,100 a year, but promotion to captain is a bigger payoff, according to ALPA. The union estimates that eventually pilots can make between $100,000 and $220,000 a year as a tenured pilot at a major airline.

Still, even some pilots who got hired by the airlines before the new rules took effect, regret their choice. One of them is Richard Papp, 26, a third-year pilot at ExpressJet trying to raise his 2-year-old daughter on a $29,000-a-year salary. "This was a lifelong dream," he said. "But if I could do it all over again, I'd do something different."

https://finance.yahoo.com/news/pilots...012500215.html

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