Size, Structure Of SkyWest’s Embraer Deal Intended To Attract More Feeder Contracts

By Andrew Compart
Source: Aviation Daily
May 22, 2013
Credit: Embraer

SkyWest Inc.’s order for 100 new Embraer 175 aircraft includes 60 that are considered conditional, which the U.S. regional carrier’s CFO says enables the carrier to obtain delivery slots without making a definitive commitment to acquire the jets until it knows it will have an airline partner to make use of them.

“SkyWest does not wish to speculate on aircraft,” Michael Kraupp tells Aviation Week. “Our deal with Embraer allows for delivery slots so we can market such to the major airlines, and then as they sign up for CPA [capacity purchase agreement] deals we can simply apply the delivery slots that have been set aside.”

Kraupp says SkyWest plans to disclose those delivery slots as it signs more CPA deals for the use of the aircraft.

As announced May 21, SkyWest has a 12-year CPA for the first 40, which it will operate for United Airlines in a 76-seat, dual-class configuration; it will begin placing them into service in the second quarter of 2014. The last one is scheduled for delivery by mid-2015.

Those 40, and the 60 conditional aircraft—which Embraer describes as “reconfirmable”—are part of a deal that also includes 100 options and has a list-price value of $8.3 billion if all 200 aircraft are ordered.

For SkyWest, the Embraer deal also is notable for how the order is structured. Historically, the carrier has separated all of the elements of the aircraft purchasing process, so that support and maintenance program arrangements would be negotiated separately. But the Embraer deal incorporates all of these, with support and long-term maintenance included.

“By securing support and maintenance programs as part of the aircraft purchase—different than our past practice—we will have better cost visibility in the future,” Kraupp says. He declined to provide any more detail on the support and maintenance parts of the package, citing confidentiality agreements.

Kraupp also says no reductions in the SkyWest 50-seat fleet are “tied directly” to the United deal. “The firming of 40 aircraft with Embraer and United stands on its own merits,” he says.


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