American Airlines Group Spending up to $10 Billion on New Regional Jets

Andrew Klips  |

Earlier this week, American Airlines Group Inc. ($AAL) was formed after the long-awaited merger of U.S. Airways and AMR Corp.’s American Airlines happened after clearing all the regulatory hurdles involved and American Airlines exiting bankruptcy.  The $18-billion merger created the world’s biggest airline, overstepping United Continental (UAL) , with roughly 6,700 flights daily to 54 countries and in excess of 100,000 employees.  The merger was proposed in February, but faced an antitrust lawsuit by the Justice Department and opposition from six states and Washington, D.C. that felt the new giant would have a monopoly in certain markets.  In order to make the deal happen, AMR and US Air agreed to give up takeoff slots and other rights at some of the nation’s busiest airports to budget airlines.

The consummation of the deal leaves America, Delta Airlines (DAL) , United and Southwest Airlines (LUV) controlling about 80 percent of the U.S. market.

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American Airlines Group isn’t wasting any time upgrading their fleet, saying Monday that it has signed a purchases agreement with Bombardier Aerospace ($BBD.B:CA) to buy 30 CRJ900 NextGen airplanes and taken and option to 40 more of the 76-seat regional planes.  The order makes American the first customer to get the latest upgrades to the jets, which offer a five percent fuel burn reduction compared to rivals’ in the same seat class, according to Bombardier.  The aircraft feature 12 First Class, 32 main cabin extra and 32 main cabin seats and in-flight Wi-Fi.

In 2012, Delta ordered 40 CRJ900’s with an option for 30 more as it also was retiring older airplanes.

Based on the list price for the aircraft, the contract is valued at $1.42 billion and would increase to $3.38 billion if the 40 options convert into orders.  The first planes are expected to be delivered in the second quarter of 2014.

"It's been an exciting week for American Airlines," said Peter Warlick, Vice President, Fleet Planning, American Airlines, in a statement today. "We've closed our merger with US Airways Group, Inc. and as we begin the work to harmonize the American and US Airways operations, an agreement like this with Bombardier will greatly improve our ability to optimize our flying with the right aircraft to meet customer demand. This order will allow American to lower costs by replacing older aircraft, “ he added.

The new order was a little bittersweet for Bombardier as American also placed an order with Bombardier rival Embraer SA for 60 E175 76-seat aircraft with an option for 90 more.  The agreement is initial valued at $2.5 billion, but could exceed $6 billion if American exercises all the options.

Both the CRJ900 and E175 lines are powered by CF34-8 engines manufactured by General Electric (GE) .

Shares of the new American have had a steady first week, rising from $23.95 at the start of trading on Monday to close Wednesday at $25.99, for gains of 8.5 percent.  In pre-market activity on Thursday, shares have gained another 1.5 percent to $26.40.

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