Seven-Year Deal Locks In Lower Rates

On the same day it announced massive cutbacks to its mainline fleet and operations, Continental Airlines also announced it reached a new seven-year capacity purchase agreement with ExpressJet Airlines, Inc. to provide regional jet service for Continental.

The new agreement, effective July 1, locks in service rates lower than rates under its current agreement, and more competitive with those offered by other regional service providers.

The new contract will continue ExpressJet's feeder operations for Continental. The base agreement covers flying by ExpressJet of a minimum of 205 regional jets in the first year, and a minimum of 190 regional jets thereafter.

In addition, ExpressJet has the right to return to Continental 39 Embraer 50-seat regional jets that ExpressJet currently uses for non-Continental contract flying. Continental plans to add the returned aircraft to the new agreement and withdraw from the agreement up to 30 of its Embraer 37-seat regional jets currently flown by ExpressJet for Continental. The Houston-based airline will then sublease or ground all of the withdrawn Embraer 37-seat regional jets to better align regional capacity with current market conditions.

Additionally, the agreement reduces the rent Continental charges ExpressJet on 30 other regional jets that ExpressJet will retain for seven years to fly at its own revenue risk.

Continental and ExpressJet also entered into a settlement agreement and release of all the parties' claims relating to payments and rates under the original capacity purchase agreement, including all disputes previously disclosed as possible matters for arbitration.

As ANN reported, Continental Airlines announced in December 2005 it would withdraw 69 of 274 regional jet aircraft from its original capacity purchase agreement with ExpressJet, which up to that point was the exclusive operator of regional jet services for the airline. That decision spurred ExpressJet to launch operations under its own brand with those 69 planes, while also continuing to provide feeder service for Continental.

FMI: www.continental.com, www.expressjet.com