World's #7 Airline Defers Delivery of Jets; Fleet Reduction Continues

Continental Airlines started the week by saying it will defer firm deliveries of 36 Boeing 737s  originally scheduled for delivery in 2005, 2006 and 2007.

As a result, Continental's fleet size is expected to decline slightly through 2005 and remain flat through 2007, assuming no further retirements of aircraft beyond those in the carrier's current fleet plan. Continental expects the deferred aircraft will be delivered in 2008 and beyond. These actions come in response to continued weakness in the airline industry.

Future is murky.

"We can't determine our need for additional airplanes until we see some return on the capital we've invested in our existing fleet of new airplanes and are confident we have a competitive long-term cost structure," said Continental Chairman and Chief Executive Officer Gordon Bethune. "We are not going to invest in aircraft that we cannot profitably fly in the current marketplace."

The airline will take scheduled delivery of four 737-800 aircraft in the fourth quarter of 2003 and 12 737-800 aircraft in 2004, marking the completion of Continental's fleet replacement program, under which the airline has taken delivery of 288 new Boeing aircraft. In addition, Continental is in discussions with The Boeing Company regarding the terms of delivery of the 11 remaining 757-300 aircraft that Continental has on order. Offsetting the deliveries in 2003 and 2004, Continental expects to retire 19 MD-80 and 737-300 aircraft -- four during the fourth quarter of 2003 and 15 in 2004. The remaining MD-80 aircraft in Continental's fleet are expected to be retired from service in January 2005. The net result will be further reductions in Continental's fleet.

Continental operated 358 aircraft in June 2003. By comparison, the airline operated 374 aircraft in June 2002, and 377 aircraft in June 2001.

Continental expects its fleet to further shrink to 354 aircraft by June 2004 and 348 aircraft by June 2005.

Stays an all-Boeing shop:

With the exit of the MD-80 from the airline's fleet, Continental will operate just three common-rated fleet types, consisting of the Boeing 737, 757/767 and the 777 aircraft. When the airline's fleet replacement plan was launched in 1995, Continental operated nine fleet types, consisting of the Boeing 727, 737-100/200, 737-300/500, 747, 757, MD-80, DC-9 and DC-10 and the Airbus A-300. With only three fleet types, the airline increases its maintenance efficiency, achieves flexibility in aircraft and crew scheduling, benefits from spare parts inventory commonality, and reduces training costs.

"As our competitors continue to restructure and achieve long-term cost stability, we also need to obtain a long-term competitive cost structure that will permit us to earn a profit," said Senior Vice President and Chief Financial Officer Jeff Misner.

FMI: www.continental.com