United Cites Fleet ‘Complexity’ as Hurdle to New Aircraft Types

(Bloomberg) -- Airbus SE and Embraer SA are facing a higher hurdle in selling their newest regional jets to United Continental Holdings Inc. because the carrier is increasingly reluctant to add the costs of managing a new aircraft type in its fleet.

The airline has become more sophisticated about “understanding the cost of complexity” in its fleet, Gerry Laderman, United’s acting chief financial officer, said Wednesday on a quarterly earnings call. Even if a particular new aircraft is perfect for a route, “if that means bringing in a new fleet type, you’ve got to burden that with all the cost associated with that,’’ he said.

For several years, United has analyzed various options for smaller, single-aisle aircraft. The carrier currently flies older Boeing Co. 737-700s with 118 seats and Airbus A319s with 128 seats.

That’s led to speculation that United may be in the market for a newer generation of larger regional jets such as the E2 family from Embraer SA or the Airbus A220, a model developed as the C Series by Bombardier Inc. The A220 has typical seating capacity in the 100 to 150 range. The E2 models seat 80-146 people.

United’s labor contract with its pilots limits how many jets the airline can fly under agreements with its regional partners. The carrier isn’t considering moving large regional jets into its mainline fleet because it would cost more than $1 million annually in additional pilot compensation for each of the planes, which generate only about $10 million in revenue per year, President Scott Kirby said Wednesday.

“You take an airplane that’s nicely profitable and you turn it unprofitable with that kind of cost structure,’’ Kirby said.

On Monday, United said it’s buying 25 Embraer 175 aircraft to replace Bombardier Inc. CRJ-700s. United currently flies 190 of the larger Embraer, and 65 CRJ-700s.

©2018 Bloomberg L.P.

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