Republic Airways: What The Labor Pact Means In Wall Street's Eyes

• Republic Airways Holdings Inc RJET shares have plummeted 46 percent in the last three months.
• UBS analyst Michael Linenberg upgraded the rating on the company from Hold to Buy, while raising the price target from $5 to $8.
• The reaching of a TA with the pilots is expected to end the constraints affecting the company’s performance and boost its valuation, Linenberg stated.

Republic Airways has reached a tentative agreement [TA] with its pilots about a new contract. Negotiations that were on and off for eight years had strained the relationship between the management and the pilot’s union.

Analyst Michael Linenberg said that the three-year TA sent to Union members for ratification is expected to reduce the uncertainty and constraints that were exerting pressure on the company’s performance for the past several years. The voting is scheduled to commence in October and expected to be completed by month-end.

Although Republic Airways’ management had been willing to raise the compensation to pilots, it had not agreed to the rates sought by the Union.

Republic Airways had to scale back its schedule owing to its inability to retain and attract pilots, Linenberg mentioned, adding “[W]e believe that this TA builds off of the last, best and final offer proposed by the company in August (which was not put to the pilots for a vote).”

The approval of the new, more expensive TA and a resized airline is expected to allow Republic Airways to achieve an annual EPS run-rate of at least $1.00 by late 2016 or early 2017.