General Lee
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United Said to Mull Embraer, CSeries Jets in Fleet Revamp
By Julie Johnsson, Michael Sasso and Andrea Rothman
November 05, 2014 4:55 PM EST. Bloomberg
United Airlines (UAL) is in talks with Embraer SA (EMBR3) and Bombardier Inc. (BBD/B) to buy new narrow-body planes amid a fleet makeover to reduce its reliance on unprofitable regional jets, people familiar with the matter said.
The discussions involve the largest models in Embraer's updated E-Jets family and Bombardier's smallest CSeries, said the people, who asked not to be identified because the details are private. An order isn't imminent, the people said.
An Embraer or Bombardier purchase would be a departure for Chicago-based United, whose pilots only fly Boeing Co. (BA) and Airbus Group NV (AIR) aircraft on its main jet routes. The jets under consideration would fill a gap between United's narrow-bodies, most of which seat more than 150 people, and commuter planes carrying a maximum of 76 passengers.
Choosing one of the new planemakers also would let United place a separate order at the Express regional unit to replace its inefficient 50-seaters. United's pilot contract lets it take more commuter aircraft, starting in 2016, as long as larger Embraer or Bombardier jets are added to the main fleet.
For regional-jet pioneers Embraer and Bombardier, a deal with United would boost their quest to weaken Boeing and Airbus's grip on sales of bigger aircraft to major U.S. airlines. Embraer's two largest E2 planes will have about 140 seats, while the CS100 from Montreal-based Bombardier will carry 108 to 125 people.
Stock Advance
Bombardier rallied on the news and gained 1.6 percent to C$3.80 at the close in Toronto. Embraer rose 0.4 percent to 24.10 reais in Sao Paulo, while United slid 2 percent to $54.11.
United isn't giving details on its fleet strategy, which includes assessing new and used planes, said Megan McCarthy, a spokeswoman for parent United Continental Holdings Inc.
"We're talking to all the manufacturers," McCarthy said in a telephone interview.
Chief Financial Officer John Rainey said Oct. 23 that United is shopping for used models from Embraer, Airbus and Boeing to take the place of the 50-seat jets being parked. United bought its first secondhand planes, two Boeing 737-700s, last quarter.
"We don't necessarily want to go out and place a brand-new aircraft order that creates several billion dollars more" of capital expenditures, Rainey said during a conference call to discuss third-quarter earnings.
Company Responses
Spokesmen for Airbus, Boeing and Sao Jose dos Campos, Brazil-based Embraer declined to comment on talks with United. Marianella de la Barrera, a Bombardier spokeswoman, said "United is obviously an airline that we're very interested in showing the CSeries too" while declining to give details.
While Embraer's E190-E2 and E195-E2 are re-engined updates of existing models, Bombardier's CSeries is an all-new aircraft. The planemaker has struggled to find buyers for the CSeries, whose commercial debut is now set for 2015's second half after missing a planned 2013 target.
The E2s, which won't start entering service until later this decade, list for as much as $62.4 million. The CS100's catalog price is $63 million. Airlines typically get discounts.
United's results have been hurt by its dependence on 50-seat jets flown under contract by regional affiliates. Even with fuel prices retreating this year, a gallon of jet kerosene still costs about 50 percent more than a decade ago, eroding the economics that once made the small planes attractive.
"We are too reliant on the 50-seat RJ," Rainey told analysts last month.
Pilot Contract
United can start adding bigger regional jets with 76 seats in 2016, on condition that it takes Embraer or Bombardier planes in the 100-seats-and-up category, according to the airline's pilot contract.
That agreement set a formula that lets United buy four 76-seaters -- such as Embraer E-175s -- for every five larger mainline planes it acquires, up to a total of 223 regional aircraft. United's Express unit, which subcontracts flying to commuter carriers, can operate jets that seat as many as 76 passengers.
United has been replacing its 50-seaters with newer, more-efficient E-175s. McCarthy, the spokeswoman, said recent orders have pushed United's tally to 153 of those planes, the maximum number allowed under the pilot contract.
Each time United replaces a 50-seat jet with an E-175, the airline generates "over $1 million of annual improved profitability," Chief Revenue Officer Jim Compton said on the earnings call.
To contact the reporters on this story: Julie Johnsson in Chicago
To contact the editors responsible for this story: Ed Dufner
Bye Bye---General Lee
By Julie Johnsson, Michael Sasso and Andrea Rothman
November 05, 2014 4:55 PM EST. Bloomberg
United Airlines (UAL) is in talks with Embraer SA (EMBR3) and Bombardier Inc. (BBD/B) to buy new narrow-body planes amid a fleet makeover to reduce its reliance on unprofitable regional jets, people familiar with the matter said.
The discussions involve the largest models in Embraer's updated E-Jets family and Bombardier's smallest CSeries, said the people, who asked not to be identified because the details are private. An order isn't imminent, the people said.
An Embraer or Bombardier purchase would be a departure for Chicago-based United, whose pilots only fly Boeing Co. (BA) and Airbus Group NV (AIR) aircraft on its main jet routes. The jets under consideration would fill a gap between United's narrow-bodies, most of which seat more than 150 people, and commuter planes carrying a maximum of 76 passengers.
Choosing one of the new planemakers also would let United place a separate order at the Express regional unit to replace its inefficient 50-seaters. United's pilot contract lets it take more commuter aircraft, starting in 2016, as long as larger Embraer or Bombardier jets are added to the main fleet.
For regional-jet pioneers Embraer and Bombardier, a deal with United would boost their quest to weaken Boeing and Airbus's grip on sales of bigger aircraft to major U.S. airlines. Embraer's two largest E2 planes will have about 140 seats, while the CS100 from Montreal-based Bombardier will carry 108 to 125 people.
Stock Advance
Bombardier rallied on the news and gained 1.6 percent to C$3.80 at the close in Toronto. Embraer rose 0.4 percent to 24.10 reais in Sao Paulo, while United slid 2 percent to $54.11.
United isn't giving details on its fleet strategy, which includes assessing new and used planes, said Megan McCarthy, a spokeswoman for parent United Continental Holdings Inc.
"We're talking to all the manufacturers," McCarthy said in a telephone interview.
Chief Financial Officer John Rainey said Oct. 23 that United is shopping for used models from Embraer, Airbus and Boeing to take the place of the 50-seat jets being parked. United bought its first secondhand planes, two Boeing 737-700s, last quarter.
"We don't necessarily want to go out and place a brand-new aircraft order that creates several billion dollars more" of capital expenditures, Rainey said during a conference call to discuss third-quarter earnings.
Company Responses
Spokesmen for Airbus, Boeing and Sao Jose dos Campos, Brazil-based Embraer declined to comment on talks with United. Marianella de la Barrera, a Bombardier spokeswoman, said "United is obviously an airline that we're very interested in showing the CSeries too" while declining to give details.
While Embraer's E190-E2 and E195-E2 are re-engined updates of existing models, Bombardier's CSeries is an all-new aircraft. The planemaker has struggled to find buyers for the CSeries, whose commercial debut is now set for 2015's second half after missing a planned 2013 target.
The E2s, which won't start entering service until later this decade, list for as much as $62.4 million. The CS100's catalog price is $63 million. Airlines typically get discounts.
United's results have been hurt by its dependence on 50-seat jets flown under contract by regional affiliates. Even with fuel prices retreating this year, a gallon of jet kerosene still costs about 50 percent more than a decade ago, eroding the economics that once made the small planes attractive.
"We are too reliant on the 50-seat RJ," Rainey told analysts last month.
Pilot Contract
United can start adding bigger regional jets with 76 seats in 2016, on condition that it takes Embraer or Bombardier planes in the 100-seats-and-up category, according to the airline's pilot contract.
That agreement set a formula that lets United buy four 76-seaters -- such as Embraer E-175s -- for every five larger mainline planes it acquires, up to a total of 223 regional aircraft. United's Express unit, which subcontracts flying to commuter carriers, can operate jets that seat as many as 76 passengers.
United has been replacing its 50-seaters with newer, more-efficient E-175s. McCarthy, the spokeswoman, said recent orders have pushed United's tally to 153 of those planes, the maximum number allowed under the pilot contract.
Each time United replaces a 50-seat jet with an E-175, the airline generates "over $1 million of annual improved profitability," Chief Revenue Officer Jim Compton said on the earnings call.
To contact the reporters on this story: Julie Johnsson in Chicago
To contact the editors responsible for this story: Ed Dufner
Bye Bye---General Lee
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AA doesn't hedge so good times for now. Not sure what the rates are for Delta and United as I think they're hedged. Hedging is very expensive to do but what do I know? At what rate is the question. As prices drop, they lose - I think. I'll do a little research and check. They both may be paying too much so I wouldn't expect a drop would change their fuel costs or their profit sharing payouts. I was going to try and fit in "crack spread" somewhere in there but it would have been out of place. 
