Airline Industry Crisis

Continental and ExpressJet Reach New Seven-Year Agreement

ExpressJet Holdings, Inc. announced today that, while it continues to explore all of its strategic options, it has entered into a new seven-year capacity purchase agreement with Continental Airlines, Inc. The new agreement, which becomes effective July 1, 2008, will allow ExpressJet to continue flying the 205 aircraft currently flown for Continental for the foreseeable future while providing Continental the right after one year to withdraw up to 15 aircraft. The new agreement significantly changes Continental’s governance rights under the original agreement, including

  • Easing change-in-control limitations on ExpressJet
  • Reducing restrictions on ExpressJet flying into Continental’s hub airports
  • Removing the most-favored-nation clause, allowing ExpressJet to actively pursue flying for other carriers and to consider other strategic alternatives.
  • Removing Continental’s ability to terminate the agreement without cause.

The new agreement is based on fixed block hour rates that include various pass-through expenses, such as aircraft rent, fuel, airport ground handling and landing fees. The fixed block hour rates are considerably lower than the rates under the current agreement and will be subject to annual adjustment tied to a consumer pricing index. The company intends to return to Continental up to 39 aircraft previously released from the original capacity purchase agreement and to aggressively reduce costs in the coming months in response to the new agreement with Continental and the economic difficulties facing the entire airline industry.

“We recognize the current challenging industry environment being faced by all airlines and we need to react quickly to this deteriorating situation. 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. That said, we are pleased to have the opportunity to continue providing uninterrupted, seamless service to Continental and their customers,” stated Jim Ream, ExpressJet’s President and Chief Executive Officer.

In addition, ExpressJet has the right to return to Continental 39 Embraer 50-seat regional jets that ExpressJet currently uses for non-Continental contract flying. Continental plans to add the returned aircraft to the new agreement and withdraw from the agreement up to 30 of its Embraer 37-seat regional jets currently flown by ExpressJet for Continental. Continental will then sublease or ground all of the withdrawn Embraer 37-seat regional jets to better align regional capacity with current market conditions. Additionally, the agreement reduces the rent Continental charges ExpressJet on 30 other regional jets that ExpressJet will retain for seven years to fly at its own revenue risk.

Continental and ExpressJet also entered into a settlement agreement and release of all the parties’ claims relating to payments and rates under the original capacity purchase agreement, including all disputes previously disclosed as possible matters for arbitration.


June 5, 2008 - Posted by | Uncategorized

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