Great Lakes reports losses
CEO blames FAA mandates
Great Lakes Airlines, the sole commercial carrier servicing Cortez, soars across blue skies in the red.
Servicing 30 airports across nine states, the Cheyenne-based regional airline reported a total net loss of more than $4.2 million at the close of the first quarter this year, according to a U.S. Securities and Exchange Commission report. Company filings with the SEC also reveal that Great Lakes was in breach of a $24 million loan at the end of March.
Great Lakes CEO Charles Howell remains adamant that the company’s financial problems are due to new Federal Aviation Administration pilot training mandates. Congress approved the added requirements with the passage of the 2010 Airline Safety and FAA Extension Act. Howell said the regulations, which increased pilot training hours from 250 to 1,500, led to a shortage of qualified pilots, which hurt the company’s operations and finances.
“What this Act did is instantaneously dry up the previous pilot candidate pool of qualified pilots,” Howell said.
Howell told the Cortez City Council in April that Great Lakes had 78 qualified pilots, down from 300 the previous year. He said that the FAA mandate raised the bar for the regional airline industry, which previously hired young pilots with 300 to 600 hours of flight training.
“This is an industry-wide issue, not just a Great Lakes issue,” Howell said.
Congress adopted the FAA rules after the 2009 Colgan Air 3407 crash that killed 49 people near Buffalo, N.Y.
Sheek seeks exemption from FAA regulations
Earlier this month, Cortez Mayor Karen Sheek wrote a letter to FAA officials requesting that Great Lakes Airlines be exempt from the FAA requirements in order to restore adequate airline services in Cortez.
“Passenger boardings in Cortez are down 36 percent over this same time period last year,” Sheek wrote. “Our deplanements are down 41 percent; completed flights, 48 percent; and seat capacity, 68 percent.”
Sheek added passenger capacity had also lowered from 57 per day last year to 18 per day currently. She requested the FAA grant Great Lakes an exemption to add 10 seats to its aircraft to meet local demand.
“To provide adequate service to our community, it is important that Great Lakes be able to offer 19-seat aircraft as standard service to Cortez,” Sheek wrote.
Great Lakes operates a fleet of six Embraer EMB-120 Brasilia and 28 Beechcraft 1900D airliners.
Union says pilot shortage is ‘self-imposed’
The United Transportation Union, which represents Great Lakes pilots, said the company could have avoided its pilot attrition rates by offering competitive wages.
In an editorial published last fall on its website, UTU officials said Great Lakes had issued some “far-flung exertions” about the cause of its pilot shortages, adding that the new FAA pilot qualifications were “hardly the unexpected.”
“Back in 2010, other airlines (and most significantly, other regional airlines) immediately began planning for this law and implementing new programs to ensure their compliance with the congressional mandate once it went into effect on Aug. 1, 2013,” the UTU stated. “Great Lakes, however, did not.”
“Any pilot shortage that Great Lakes is now experiencing is completely self-imposed,” the UTU stated.
Howell said Great Lakes tried to maintain its pilot staffing, but an analysis of the company’s Twitter account revealed a lackluster attempt to recruit pilots. From February 2010 through February 2014, less than one percent of all Great Lakes Airlines tweets mentioned career opportunities. As of Tuesday, the company’s website listed two pilot openings and one for an instructor. Advertised pay for a captain’s position was listed at $27.48 per hour. Guaranteed a minimum of 75 hours per month, pay for a first officer was listed at $16.24 per hour.
Arguing Great Lakes continues to receive federal subsidies, UTU officials maintain any FAA exemption granted to the company would be unfair and offer passengers a less experienced flight crew. The UTU said that exemptions would require pilots to work grueling schedules with less sleep, and under more difficult conditions and with less sophisticated equipment.
According to SEC filings, Great Lakes Airlines receives about 55 percent of its annual revenue from federal subsidies. Despite that fact, Great Lakes entered into a temporary forbearance agreement last month with Boston’s GB Merchant Partners, LLC. The company granted Great Lakes a $24 million loan in November 2011, and as of March 31, the outstanding balance of the four-year term loan was $14.2 million.
In addition to a temporary interest rate increases, the forbearance agreement requires Great Lakes to market its excess aircraft and to hire a financial adviser to raise capital.
At the close of the year’s first quarter, Great Lakes reported assets of $19.2 million, liabilities of $34.5 million and shareholders equity of $34.3 million.
Douglas G. Voss, Great Lakes co-founder, chairman and president, controls more than 4.1 million shares, roughly 46 percent, of Great Lakes common stock. The company reported net income per share was negative 48 cents as of March 31.
“We intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on our shares of common stock in the foreseeable future,” Great Lakes reported to the SEC.
Over the past 52 weeks, shares of Great Lakes (GLUX), have fallen from a high of $1.50 on July 22, 2013, to a low of 41 cents on June 6. According to its SEC report, Great Lakes predicts losses will continue until the company is able to re-staff a sufficient number of qualified pilots.
Since 2010, the company has reported average annual gross profits of $33.75 million. At the end of 2013, the company’s gross profit totaled $28 million, down from $37.9 million the year before.