United Grabs Regional-Airline Stake in Boost for Hubs

(Bloomberg) -- United Continental Holdings Inc. agreed to acquire a stake in ExpressJet Airlines, one of its regional affiliates, in a $70 million deal that will give the No. 3 U.S. carrier more control over short-distance flying and a fleet of about 150 small jets.

By gaining sway over more United Express service, the purchase furthers United’s plan to bolster service to smaller cities and expand domestic growth of flights and seats by 4 percent to 6 percent a year for the next two years. ExpressJet currently flies for United mostly from Houston and Newark, New Jersey. United also holds a stake in CommutAir, an Ohio-based regional carrier.

The acquisition lets United “guarantee continuity of its 50-seat flying (which has been instrumental in its midcontinent hub build-out) with the same aircraft, crew, and at current rates,” Raymond James analyst Savanthi Syth said Tuesday in a note to clients. The decision should bode well for Mesa Air Group Inc. as it seeks to renew United contracts that end next summer, Syth said.

Under the deal announced Tuesday, United will hold a minority stake in a company that acquires ExpressJet from SkyWest Inc. Investment group KAir Enterprises Inc. is the majority owner. United has a labor contract that requires it to use company flight attendants if it holds a controlling stake in another airline.

“We believe this change will ultimately provide our customers with a better overall travel experience,” said United spokesman Charles Hobart. “ExpressJet has a proven track record as a top performer and efficient regional partner.”

Atlanta-based ExpressJet, which was acquired by SkyWest in 2010 for $133 million, also flies for American Airlines Group Inc. The pact with American is set to end in April 2019.

Positive Step

United’s deal for a regional partner is “a step in the right direction toward controlling our United Express product,” the carrier’s chapter of the Air Line Pilots Association union said in a memo to members. “The best long-term solution is to bring this flying to the mainline, with United pilots at the helm.”

United will add 106 Embraer SA ERJ-145 jets to its regional fleet when the deal closes, which is expected early next year. Delivery of an additional 25 Embraer E175 aircraft on order will begin in 2019. SkyWest also will lease 20 Bombardier Inc. CRJ200 planes to United for as long as five years. The Saint George, Utah-based regional carrier additionally has a “priority position” to fly 25 more E175s for United if needed.

The incoming E175s will have 70 seats, below the industry standard 76, because of pilot-contract restrictions on regional flights. United’s pilots union wants the carrier to move the E175s from regional carriers into United’s mainline fleet and fly them with 80 seats, though management has said that is economically unfeasible.

United has a 40 percent stake of CommutAir, which flies 50-seat E145s at Newark Liberty International Airport in New Jersey and Dulles International Airport outside Washington.

To contact the reporter on this story: Justin Bachman in Dallas at jbachman2@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson

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