United Airlines Took The Hit For A Bankrupt Partner

Theron Mohamed
April 12, 2017

A video of a physician being yanked out of his seat and dragged off a plane has sparked widespread condemnation of United Airlines. But the infamous flight was actually operated by bankrupt carrier Republic Airways - a fact that has flown under the public radar. United may have taken a bullet for its embattled partner.

Republic needed to fit four crew members on a sold-out plane to Louisville in order to staff an upcoming flight. After its offer of $800 in compensation was ignored, the company randomly selected four passengers to kick off the plane. When Dr David Dao resisted, pleading that he needed to see patients the next day, Republic called in aviation security. His face was bloodied in the resulting struggle, which led to him being dragged down the aisle past dozens of horrified passengers.

 

As the flight was outsourced to Republic, the crew's uniforms, the headrests and passengers' tickets carried the United brand. Accordingly, almost all of the outrage and criticism has been directed at United, and CEO Oscar Munoz has exacerbated the situation. He apologised for having to "re-accommodate" Dao and described him as "disruptive and belligerent" in an email to employees. Only later did he describe the incident as "truly horrifying" and the officials' conduct as "mistreatment".

It's surprising that United hasn't tried to pass the buck to Republic, given its attempts to downplay the issue and glaring lack of empathy. Moreover, blaming Republic could have reduced the risk of a successful lawsuit, as the carrier filed for bankruptcy protection last year. But United has accepted full responsibility, putting itself on the line for a sizeable payout. That may not be as silly as it sounds.

Republic blamed a shortage of pilots for its bankruptcy, according to Bloomberg. It inked a three-year deal with the pilots' union in 2015, but higher wages forced it to renegotiate aircraft leases and contracts with United and other carriers, leading to grounded aircraft. Republic's bosses may have embraced bankruptcy to escape unprofitable contracts and leases without paying the usual penalties.

Over the past year, Republic has renegotiated and extended its contracts with United, American Airlines and Delta. Moreover, a judge recently denied a challenge to Republic's exit plan that delayed its reorganisation for weeks. Given the company's recent troubles, and executives' fear that prolonging bankruptcy could weaken the company's ability to attract and retain pilots, the turbulence of bad press and social media outrage posed a threat to its future existence.

United's reputation and stock price have taken a hit since the damning video went viral. But absorbing the blow - which could have been a knockout punch for Republic - saves it from having to find a substitute partner and could mean better contract terms in the future. And it receives some kudos for stepping up and taking responsibility. Not a bad outcome from a terrible situation.