As a measure of its successful diversification beyond Continental Express, ExpressJet Holdings is increasing its operations for United Express in a deal announced this week with United Airlines. The new agreement covers 22 Embraer ERJ 145s previously announced, as well as a further ten. As part of the agreement, on 17-Feb-2010, ExpressJet issued a warrant to United for the purchase of 2.7 million shares of common stock with an exercise price of USD0.01 per share of common stock.
ExpressJet began its United operations on 01-Dec-2009, replacing another United Express carrier – Mesa Airlines – when its contract expired. The final contract includes another ten 145s that had been flying in the company’s corporate/charter division and which will begin flying for United Express on 01-May-2010.
In January, it had ten aircraft in the United Express operation, but will be adding six this month, another six in Mar-2010 and the final ten in May-2010 for a total of 32 aircraft. The additional ten will fly in ExpressJet livery but only through to Dec-2010. There are options to renew these aircraft for up to four additional period of not less than 30 days per renewal period, with the deadline for renewal notification on 15-Jun-2010 for the first six aircraft and 15-Aug-2010 for the final four. The airline cited its desire to afford United with increased flexibility, in allowing its major partner to extend the renewal deadline. Should they not be renewed, they will return to ExpressJets’ charter business.
The contracts are relatively short term, with the initial term of three years (expiring on 30-April-2013 covering 11 aircraft with the second tranche of 11 aircraft expiring on 30-April 2012), although there are renewal options in the contracts for additional periods up to a total term of five years, should United require it.
There is also the possibility of three aircraft coming out of the United Express program on 15-Oct-2010, another three on 15-Nov-2010 and the final four on 15-Dec-2010.
ExpressJet expects that full-year block hours within its contract flying segment should increase between 10% and 15% as a result of this flying for United, and that run-rate expectations will be established during third quarter 2010 after all the aircraft are in place and start-up costs, including paint, interior modifications and aircraft positioning, are complete. Future operating statistics will be categorised as contract for reporting purposes and revenues associated with United will be recorded as passenger revenues.
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