New Continental Agreement Shores Up Carrier's Standing
Given the recent announcement of a new capacity agreement
between Houston-based ExpressJet, and Continental Airlines -- its
largest customer by far -- things appear to be looking up for the
regional airline, at least as much as they can be in the current
ExpressJet executives received another bit of recently, as well.
Rival SkyWest dropped its purchase offer for the airline last
Friday, after having an earlier offer of $3.50 per share soundly
rejected in April.
It was clear ExpressJet management wanted the airline to remain
indepedent... though, at that time, it seemed unlikely the carrier
would be able to remain so, and stay in business. The Continental
agreement shores up ExpressJet's finances, however... and as a
result, makes the carrier less attractive for SkyWest to
"The execution of a new ExpressJet capacity purchase agreement
removes a fundamental component of our offer," SkyWest Chief
Financial Officer Bradford Rich told Forbes.
As ANN reported, ExpressJet
and Continental signed a new, seven-year deal last week. Under
terms of the agreement, ExpressJet will continue flying 205
regional aircraft for Continental for the foreseeable future.
Perhaps more importantly, the deal signaled an easing in
tensions between the two carriers. Once a subsidiary of
Continental, ExpressJet was spun-off as a separate entity in 2002
under an IPO that raised some $500 million. Under that deal,
ExpressJet continued flying exclusively for Continental... but
things changed when Continental tried to renegotiate its contract
due to higher fuel prices.
ExpressJet -- which at the time purchased fuel from Continental
at 71 cents a gallon, less than 25 percent the actual market price
-- balked at that plan. As a result, Continental began taking
business, and planes, away from the airline... but ExpressJet held
firm, starting its own branded service in 2006, and offering its
services to other carriers as well.
The new agreement brings the fuel prices in line with what other
regionals pay, which benefits Continental... while guaranteeing
ExpressJet a steady stream of business.
As for SkyWest, it plans to stay busy flying code-share flights
for Delta Air Lines and United Airlines. "This [purchase] wasn't
critical for SkyWest," Prudential Equity analyst Bob McAdoo, "this
one happened to pop up, but the thing that brought it along was
fixed and now we move on."