Republic Airways Holdings Inc. (RJET) May 13, 2026 Conference Transcript

Well, good afternoon, everyone. Andrew DeDora here with the B of A Airlines research team. Our next fireside is with the team here from Republic. We have the chairman and CEO, David Grizzle, president and incoming CEO, Matt Koskel, and CFO, Joe Allman. So gentlemen, thanks for joining us today.

We're really glad to be here. Thank you so much for inviting us. That's the three of us right there. How do we look? I want to pick up on what Andrew just talked about here. We are a company that prides itself on our culture. And a lot of companies talk about culture, but for us, it is truly foundational. And Andrew just mentioned that Matt has been promoted to the role of CEO effective June 15th. That's very important. And I want Matt to be the one to actually walk us through this slide here. So this is not just wallpaper, but you actually hear this because our culture is foundational. And Matt is the artisan of these cultural artifacts that are presented here. Matt, would you go through that for us? Sure.

Thanks, David. So let me start, though, by reemphasizing what David just said. I truly believe any CEO who doesn't have culture as their number one initiative is missing the boat today. The workforce is more demanding than ever. We've transitioned into an employee-employer relationship en masse that is more transactional in nature. And if you have a transactional workforce relationship, you get the 9 to 5, and that's it. And you never get the discretionary effort. You never get that discretionary connectivity to folks feeling that they own a part of the mission that they're a part of. And you can't be excellent, and you definitely can't run an excellent airline if you don't have that discretionary effort. We rely on it every single day to deliver the product that we deliver in a very complicated work environment. And that is why culture is so important to everything that we do. I'll guide you to the guiding principles on this page because that truly, as we talk through it David just had an opportunity to join me and 40 of our associates on a mission trip in Honduras something we do once a year we take them down and we've got a sustainability mission that we've been working on down there and one of the things he came back and highlighted for me he goes is every one of your conversations I've seen you do it in the workplace I haven't seen you do it in our you just hadn't been a part of it with me but every conversation we have with every partner and everyone that we engage with, we lean back into one of our four pillars of guiding principles, stewardship, excellence, trust, respect, care for one another, fun and action. And I think that is essential because it provides that connectivity and fabric for our associates into what we're doing and connects their mission with their work and their purpose. And we believe that's a competitive advantage. We're assured that it's a competitive advantage where we look at a marketplace where human capital and access to human capital, retention of that human capital is the most competitive thing we compete in each and every day. We've made tremendous investments in our training infrastructure. David will talk about it in a minute. And for us to not invest in culture in a way that allows us to get the most out of that investment and to retain those associates is something that's a huge miss. So it's not just words on a slide, but it is the number one mission that I have as CEO that our leadership team has, is that we create a culture and a work environment that is committed to excellence, that allows our associates to connect each and every day to that mission, and to be empowered to make it happen. And as you'll see in the presentation as we go further, we do something that is not very easy to replicate. And at the end of the day, it is because of our culture.

So you'll continue to hear us harp on this idea of culture. And the reason is that it is our culture that enables us to achieve industry-leading operational reliability. That is what we sell, operational reliability, especially in the most challenging airspace in America. we fly and i saw your face we fly and then we fly we fly predominantly in the northeast that is where we have the worst weather compounded by the most significant air traffic control challenges and we are hands down the best operator in that geography and we are that good because of our culture, particularly in an irregular operation situation. It is culture more than it is technology that enables you to recover quickly from a significant irregular operation like we've had in spades during the first quarter. And so we rely very heavily on culture because we're selling operational excellence. We have a leadership team that has been with this company for decades, but more importantly, they have been in regional airlines and they are experienced in this geography for decades. They have learned the particular techniques that are necessary to achieve high operational reliability in very challenging work environments you know i've gotten a lot of calls from friends recently asking me how we're being affected at republic airways with the surging fuel prices and i explained to them it's had no adverse impact on us at all because we don't we don't bear any fuel risk in our capacity purchase agreement model we don't bear fuel risk and in addition we don't bear passenger marketing demand risk. Now, again, indirectly, it will have an impact over time, but we have no direct passenger marketing risk as well. So our CPA model insulates us from the most significant vagaries that the airline business in general has to deal with. We have made a significant number of very smart investments over time to create an infrastructure that supports our company from the first time an employee walks in the door until the time that that pilot is sitting in a left seat. starting in 2018 we identified that a pilot shortage was coming and we immediately embarked on significant self-help activities starting with creating a flight school that is an ab initio flight school so people can come into our flight school lift academy with absolutely no flight experience at all and we work with them providing financial support so that they are able to emerge from there build hours in one of our subsidiaries or as a certified flight instructor and move to our right seat in our airplanes and then they begin enjoying another area of investment that we have made which is to build an integrated training facility where we have our headquarters in Carmel and the beauty of what we have done and I really have to credit Matt with a large part of this is that from the moment a pilot a prospective pilot walks in the door at Lyft Academy until he or she finds themselves sitting in the left seat of one of our Embraer 170s or 175s they have received an integrated training experience involving not only preparing them for understanding the technology we use but again enculturating them in what makes Republic such a special place to fly and we have found that by doing that, that we have been able to avoid the challenges of pilot supply shortage in a way that has not been fully mastered by some of our other participants in the industry here. Finally, we have a strong balance sheet. We have a very strong balance sheet and one that we have a, I would call it a leverage efficiency strategy that we are also pursuing, even with the balance sheet that we have, so that we intend to make it stronger and to make it more serviceable, increasingly serviceable for our operation. Matt said that, or I said that Matt has been promoted to CEO. That is a change that was envisioned a year ago when our former CEO and essentially our founder departed to become the FAA administrator. At that time, we put in place a transition plan to move us from Brian to Matt, and we will fully complete that June 15th. And we have the highest degree of confidence that Matt will be able to build significantly on what exists at Republic because he's been such a significant architect of it thus far. Matt, let me tell here a little bit more about what we are. We're a single fleet airline. We fly just 170s and 175s. We have three customers. You can see the distribution of our aircraft positioning among those three there. And again, as I said before, almost all of our operations are in the Northeast. It is because of what we do in the Northeast that these three customers in particular value us so very highly in this slide here you can see that we have been through a number of manifestations as an airline and where we are now it is is a significantly more simple and consistent operation of what we've been at many times in the past but the important thing about our history within the industry is that we have now emerged after the failures of other carriers, the consolidation of other carriers as the one fully scaled, fully scaled pure play CPA carrier with a single fleet. None of the others have that and each of those elements is important. the fact that we are pure play CPA. I told you the advantage that we have for that. We have a single fleet type and we are fully scaled. With Matt, that, let me turn it over to Matt. Sure.

Thanks, David. So, you know, great background. And it really, you know, as we look at it, it all comes together as to why we have the relationships we have with our three large partners. And key word to focus on here is brands, right? And why? Because over the last decade, we've seen our customer strategy change to brand-loyal airlines, right? And no different with our product. If you went back 15 years ago and you were selling CPA service, it was all about low cost. Who's providing the lowest cost of flight hour operations? Today, we are seeing the haves and the have-nots in the aviation industry. And our three partners here are delivering the brands that are at the top of that K-curve and are really starting to show the differentiation of premium product, brand-loyal customers, and premium environments. And we've had to adapt our business model over that same period of time to recognize that we have a brand ourselves. And if we're going to be the solution provider for the three major carriers who are looking to deliver a differentiated brand, it goes right back to this culture story. It needs to start by us delivering a differentiated premium experience to our associates and providing them differentiated tools to deliver operational excellence unlike anyone else. It's worked for us well. We have had several iterations, as David has described, but each one of those iterations had a common theme. It was being a proactive solution provider for a need from our code share partners. And today, it's all about brand, dual, large class service. And when you look at our density of operation, hopefully folks in here realize you've flown us. If you've flown out of New York City, you've flown us. I guarantee it. We're the largest airline that many people have never heard of if they're really not paying attention to the operated by signal. But what does this tell you? This tells you what we do is incredibly important for our co-chair partners by the markets we fly in. It's incredibly valuable for our co-chair partners, and it is incredibly difficult to replicate. you know the entry uh threat that we have by somebody coming in and trying to replicate what we do at scale is an incredibly high hurdle um you know every day we'll hear from our uh our associates man can't we get some easier flying and I quickly remind them that you know the fact that it's not easy makes us incredibly relevant long term so a barrier to entry we have is the operational excellence that we've been able to deliver year in and year out and as you look at this map this shows you two things two important notes one is it gives you a visual of the density that we have in some of the most important markets in the country markets that in good times and bad times or you know everything in between are relevant they're the quickest to recover and they're least impacted even when we have slower times and what David didn't mention which I think is a really important thing to keep front of mind in a very busy aviation market is we almost have a counter cyclical trend when times slow down right when there's a degaging because demand actually slows and we're not seeing that signal even in in today's marketplace but when there's a degaging what you see is our co-chair partners turn to higher utilization of our product because it fits the density and demand for the connectivity that they need to feed their hubs. So even in a historic, you know, slowdown, we've actually seen this counter cyclical trend that our demand remains either, you know, robust, flat or increasing because they de-gauge to use our aircraft even with greater frequency. What's not on here in this slide, you know, is to recognize we do all of this and david talked about with better excellence than anybody else out there with operational reliability what does that mean in our world last year we had a 99.99 controllable completion factor mark so if it wasn't being canceled by air traffic control for weather we weren't canceling it our operational reliability as far as maintenance reliability and crew reliability is second to none in the most difficult environments. And IROPS, you know, I want to highlight that as well. David talked about irregular operations. Realize irregular operations are becoming more regular, okay? In March alone, 24 days were irregular operational days for us. So having the tools and the resources to deliver that high level of reliability is becoming increasingly more important as we see stresses and staffing at ATC and some of the other constraints that are really impacting the industry. And we've demonstrated year in and year out robustness in delivering that. An important thing on here as well is you see this new blue spider web coming out of the Texas area. And that represents our expansion with Mesa. And what's great about that is it not only gives us scale that I'll talk about, increased scale, but it gives us our first geographic diversity uh in where we operate and we saw some real uh uplift in q1 in regards to while the northeast corridor was a very difficult operating environment the performance and the weather patterns through houston and and that part of the country gave us our first level of diversification and operational disruption and that was a great uh early sign that we saw in the first full quarter of mace operations as we look at this merger that we closed last november on november 25th uh what's great about this merger well first you know the obvious part is it gives us increased scale an increased scale is is a wonderful thing to have in in uh in our part of the business for a whole host of reasons which i know you're aware of but what this gave us was immediate scale you know if you look at an organic opportunity bringing 60 aircraft on if we had signed up this deal and just you know stolen share from mesa that's a two year two and a half year uplift to actually get those aircraft into the operation and here we've got the full year benefit of 60 aircraft in day one so you know the the transaction strategically the way we put it together gave us an immediate uptick of 60 aircraft in the operation it also has been an underperforming asset you know so we're already seeing early signs of us improving the maintenance turn times applying our expertise our planning our supply chain management and that gives us you know, increased confidence that as we get through this integration over the next two years, we will see improved built-in growth out of improving the performance and utilization of the Mesa asset. So great opportunities there for us to actually take an underperforming asset and bring it up to our level of operational excellence to the benefit of our shareholders and our customers. And finally, it's great for our employees, right? It gives them additional basing opportunities, additional growth, additional code share opportunities to fly on. So a great strategic transaction for us that worked for our co-chair partners. It fixed an underperforming asset for one of our co-chair partners and provided us with growth and scale. And we're really pleased with where we sit today with the Mesa integration. We're ahead of pace as we look at the Mesa integration roadmap. It's really a one, two, three kind of phased process here. Phase one is corporate integration in the back office work streams. We're ahead of our initial internal plan and expect that to be completed in Q4 of this year. Phase two is our fleet harmonization, bringing these 60 aircraft onto our maintenance program. And when we get through that process, we are on target with each one of the milestones that we've established, which were aggressive for us. They really were aggressive targets, but we've been hitting those through Q1. And as we get through that process, that will unlock additional utilization opportunity in that fleet as we bring it to our maintenance program, our level of maintenance care, which is a great long-term 2027-2028 opportunity for us. And then the last piece is this regulatory integration, bringing the two operational certificates into harmonization. And that's a multi-year process that'll take us through 2027 into 2028. There's typically five revision cycles that we go through in bringing the two op specs together. We're filing the first revision cycle this month with the FAA. It's focused on bringing our safety management systems into harmonization and unifying those programs, and we're on track to deliver a unified operation over the next two years. All of that is encompassed, obviously, by IT systems integration and building up, which we've done in the last six months, really building the hardware infrastructure at Mesa to allow our systems and processes to come in and be supported there. We've already seen improvements in operational reliability within that operation on the installed fleet. And we'll continue to envelope this entire process over the next two and a half years as we bring the two organizations together. And it really just brings us back to our competitive advantage. And I know it sounds like a broken record, but it starts with culture. We have the right ingredients because we have the right culture you know we marry that with we've got the right fleet the e-175 fleet if any of you are flying regional aircraft on a regular basis it's the aircraft you want to be on you've got overhead bins you've got two by two seating you've got first class cabins i mean it is a wonderful product uh to fly on and it's built for you know the business and leisure customer alike we've got the right infrastructure in place you know we have made the right investments over the last several years from training infrastructure to ab initio training solutions to our IT solutions to be positioned to be the right solution provider for our customer needs today and into the future and that's really what will differentiate us as we continue to move forward was we built a reputation of being the solution provider for our customers American Delta and United in their most complicated areas of operation. And we've made the right investments to position ourselves for that into the future. So with that, I'll let Joe briefly take you through some financials, and then we'll open it up to some Q&A.

Great. Thanks, Matt. I'll just touch on a few highlights from the first quarter. But as Matt and David have already covered, it was an extremely challenging operational environment. And so our completion factor, inclusive of ATC cancellations and weather was down about 3% from what would be a normal first quarter, around 97%. We actually were below 94% at 93.87. That's nearly about five days worth of flying that we lost entirely in the first quarter. But with that, the business still performed quite strong and was very resilient. We had an adjusted EBITDA of approximately $100 million, had about $9 million of add-back related to merger and integration-related costs to get to that number. Our revenues as we sit here during the quarter were up 34% on increased block hour activity, which is what we measure as kind of the flight and block hour produced for our airline partners and how we get compensated from them. The balance sheet, as David is extremely well positioned, we've made all the critical investments necessary for not just 2026 and 2027, but really for the next decade and a half. I mean, that truly is what I think any new investor coming into Republic should understand. The capital infrastructure and training infrastructure investments that we've made over the last five years are just transformative. And we believe we'll set the airline up extremely well for the future. As we look at the year this year, we see gross capex of about $170 million. And much of that has already taken place in Q1. We'll see CapEx over the balance of the year kind of lighten up as we've concluded all of our recent new aircraft deliveries that were coming in to replace 170s at United with new 175 aircraft. The balance sheet continues to strengthen with a deleveraging effort. We see long-term goal of leverage targets below or at 1.5 times. Today, we sit just at 2.7 in terms of turns, and by the end of the year, we should be below 2.2. We are well-positioned for the future, and I want to leave time for questions. Our last slide was just reaffirming the guidance that we issued at the end of our year-end call in Q1. Obviously, given the performance of the airline in any other environment, we probably would have been looking at or talking about raising guidance given the performance of the business in the first quarter. But with the volatility that we have in the markets and in particular with just where we see the business shaping up, we're not seeing anything negative in terms of those trends. they're all positive but as we sit here we just felt like it was so recent from our year-end call to the first quarter call we we just reaffirmed guidance but hopefully we can provide you an update as we move into 2q so with that I'll conclude sorry Andrew we left eight minutes no well all good great uh great overview and um great intro to the to the company I know it's probably you guys are probably a little bit new to some of the folks in the audience so if there are any people have any questions just let me know but i'd love like your culture point is you

know certainly certainly taken maybe two questions on that one it just in terms of mesa i would have you know i would think the culture at mesa was a lot different than what you have at republic now like how did you go about like trying to affect change in that or you know cultural change in that organization and then second you know you spoke about your culture driving your you know great you know performance in the northeast like what's your secret sauce here uh you think we're gonna tell you there's some pilots here that would like to know i think yeah look um on on the culture side at mesa uh first and foremost let's go back to the type of folks that stay in

aviation you stay in aviation because you have a passion for it it's a difficult business right every day you wake up and you don't know where you're going to be as far as you know we talked about IROPS, you think you're going to end up in Buffalo and you end up in Columbus overnight, right? So you have to love this business. And Mesa's frontline employees absolutely love this business. And it's been an easy roadmap for us to follow because it's where we were a decade and a half ago, right? We were underinvested in our technology and our infrastructure and coming in and taking a passionate group of aviation professionals and saying, hey, we're ready to invest in your airline, and here's the roadmap, has been probably one of the easiest work tasks you could have as a leader. They've been hungry for the help, hungry for the investment, and really responsive. Like anything, you make immediate changes. We made some changes, you know, where if we identified any roadblocks early on to culture, We made those changes, and we've been on the ground and, you know, visible and present each and every day and week in Mesa and Phoenix since the closing date on November 25th. So it really – it's not a secret recipe.

It's just genuine presence and investment and being there with the team. but i do want to say one thing about your your final question about you know where does culture fit into uh irregular operations and managing those we have an we have an every morning ops call where we go through every event that occurred the preceding day and i sit on sit in on that call probably once a week and i've seen there what i call competitive collaboration which i have never seen in any other environment where the ops people are genuinely at one time competing with one another to do their job the very best and they recognize and exhibit that doing the very

best can only be done collaboratively and so you have these two principles at work that are generally thought of as antithetical but they come together because of the culture that has been developed here in a way that drives excellent performance in the regular operations competitive collaboration doesn't help me on my Northeast question look I had a ton of nice list of questions here I would like with five minutes left to kind of want to just focus on maybe your core customer just being the the network carriers right I guess when you speak to your partners today you know what do you think they value the most out of you know out of republic is it you

know your staffing stability cost structure like you know what do they you know so what do they choose you over internal operation you know their own you know their own affiliates or other regional carriers yeah look it's a it's a great and fair question and uh cost is absolutely important right you know cost though is you know the entry fee you got to be cost competitive at what you do what do we do that's differentiated one you know we perform with excellence we do it with very little intervention right I mean wow it is wonderful to have we all have partners right that are high maintenance and low maintenance and we are a low maintenance partner because we're proactive we've made investments we're industry leading in what we've done and we are proactively collaborative with each one of our co-chair partners meaning when we identify trends We bring those trends to their attention. We come up with, you know, collaborative approaches to actually tackle that and help them deliver a better product in their regional space. So it really is just the operational excellence each and every day that we're able to produce and the proactive nature to solving problems and helping them take that and, you know, make their other partners better. You know, we want this to be a strong industry. You know, there's nothing that we do that we try and, like, keep from others. You know, the stronger this industry is, the better for everyone. We've got a lot of confidence that, you know, we've got such a head start that we can continue to outperform our peers as they try to catch up on the infrastructure and technology and cultural investments. Got it.

And a theme that has popped up among the network carriers of late is just potential consolidation, right? Like, I know you're not, like, when we think about network carrier consolidation, how do you think that impacts the regional industry?

So, look, I'm going to stick to talking about our consolidation with Mason. I'll let our co-chair partners talk about what they think about their level of consolidation. Other than to say we've seen everything as an industry over the last 20 years. And you've seen a lot of consolidation. We've seen a lot of consolidation. We've seen it in the regional space. you've seen it in the mainline space um and i think at the end of the day as long as we stick to our core values as far as being able to provide them solutions in the most complicated environments no matter what that is we're going to continue to be you know their partner choice that they look to and and we really value ourselves that in their most complicated and difficult times new york is a complicated and difficult time every day and they've leaned into us to solve that problem for And it hasn't always been the case. They've brought other folks in to New York and they've moved them out and reduced their, you know, frequency and density there. So, you know, we'll let them figure out what's the right footprint for their long-term strategy. But I know that the value proposition we bring to them is, you know, enduring long-term.

Just maybe last one for me in the final couple of minutes that we have is just, you know, when you think about, you know, And when you speak to your partners, kind of when you think about your balance sheet, right, just in terms of, you know, matching up my kind of debt profiles, how do you think about the long-term margin potential of the business?

Yeah, I'll tell you, I think right now our focus is on, you know, continuing to evaluate ways to de-lever. The business is extremely well positioned going forward. We believe as we continue to progress through the Mesa integration, we will see some uplift in the margin. You know, this business is quite stable. That's the one thing as an investor you should understand. The regional business doesn't have really high highs, and it really shouldn't have really low lows. I don't want to call us a utility, but at some level, it has that utility-type concept where, you know, we focus on the cash flow generation and obviously how that cash gets redeployed across the balance sheet, whether it's reinvested through CapEx, you know, taking down leverage through debt paydowns or shareholder-friendly activities.

Got it. Any final questions from the audience in the last few seconds that we have?

Thank you, gentlemen. Thank you. Thank you.