Continental defers Embraer deliveries
Continental Airlines and Brazil’s Embraer last month agreed to defer deliveries on 60 fifty-seat ERJ-145XRs jets by as much as two years, sending stock prices of both companies sharply downward. According to the new schedule, Embraer will deliver to ExpressJet 36 aircraft instead of 48 in 2003 and 21 aircraft instead of 36 in 2004. In 2005, the revision increases the number of deliveries from two to 21, leaving eight more units for delivery in 2006. At press time still subject to approval by Continental Airlines’ board of directors, the schedule change would become effective in the third quarter of this year.
Embraer’s stock dropped 9 percent on the day of the announcement on concerns about other airlines following suit. ExpressJet’s shares dropped 26 percent on the news, as the airline estimated the move would hurt this year’s earnings per share by between two cents and four cents. As a result of the ExpressJet changes, Embraer has revised its total delivery forecast for this year and next year, from 148 to 136 and from 155 to 140, respectively. Last year it delivered 131 airplanes.
ExpressJet’s sole mainline code-share partner, Continental Airlines, said it proposed the changes and that “ExpressJet agrees with Continental’s assessment of industry conditions.” In recognition of the deferred deliveries, Continental, among other items, extended ExpressJet’s guarantee as the exclusive provider of regional jet service in its hubs by one year, to Jan. 1, 2007. ExpressJet estimates that the new delivery schedule will reduce its capital expenditure requirements this year by nearly $18 million, to approximately $75 million.