Continental, ExpressJet sign 7-year capacity deal: Financial News - Yahoo! Finance
Continental, ExpressJet sign 7-year capacity purchase agreement to continue regional service
HOUSTON (AP) -- Continental Airlines Inc. and ExpressJet Holdings Inc. have signed a seven-year capacity purchase agreement that will allow ExpressJet to continue to provide regional jet service for Continental.
The two carriers said late Thursday they have also entered into a settlement deal related to an original capacity purchase agreement.
The base deal, which begins July 1, calls for ExpressJet to continue flying the 205 regional jets it currently operates for Continental in the first year and allows Continental to scale back the fleet by 15 after that period.
ExpressJet said it will also return 39 Embraer 50-seat regional jets to Continental it currently flies under contracts with other carriers. ExpressJet also said it will "aggressively reduce costs in the coming months in response to the new agreement and the economic difficulties facing the entire airline industry."
Continental said it plans to add the 39 jets to the new agreement and withdraw up to 30 of its 37-seat regional aircraft currently flown by ExpressJet for Continental. Continental then plans to sublease or ground the 30 jets as part of its planned capacity cutbacks.
Continental said early Thursday it will cut capacity by 11 percent and slash 3,000 workers from its payroll as market conditions worsen amid record fuel costs.
ExpressJet said the new agreement makes significant changes to Continental's rights as compared with the original deal, including the easing of certain limitations and restrictions.
The deal also allows ExpressJet to fly for other carriers and to continue the consideration of strategic alternatives, including the company's possible sale.
ExpressJet said earlier this week it is continuing to explore strategic and operational alternatives in response to SkyWest Inc.'s unsolicited takeover offer in April.
The new deal also requires Continental to give cause if it plans to withdraw for any reason. "We recognize the current challenging industry environment being faced by all airlines and we need to react quickly to this deteriorating situation," ExpressJet's President and Chief Executive Jim Ream said in a statement. "While this new agreement with Continental reduces uncertainty around the core aspect of our company, it certainly reflects the current operating environment and the evolution of the relationships between mainline and regional airlines."