FlyBE, the UK regional low fares airline, said on Monday, that it would buy up to 26 regional jets from Embraer, the Brazilian aircraft maker, in a deal that could eventually be worth $950m at list prices before discounts.
The agreement on the modernisation of its fleet is an important milestone in the airline’s preparation for a stock market flotation or trade sale within the next 18 months.
The UK carrier is to become the global launch customer for the 118-seat Embraer 195 with 14 firm orders and options on a further 12 aircraft. The firm orders will be delivered at the rate of almost one a month between August next year and December 2007.
FlyBE has chosen the Embraer 195, the largest aircraft made by the Brazilian group, in preference to larger 150-seat aircraft from either Boeing or Airbus. It is terminating negotiations with the US and European groups over the possible purchase of Boeing 737 or Airbus A320-family aircraft and will halt its trial flying three 737s from Birmingham and Exeter next summer, when the aircraft leases expire.
The 195, part of Embraer’s developing 170/190 family of large regional jets, made its maiden test flight last November and is due for certification in the second quarter of next year.
FlyBE, formerly known as British European and Jersey European, has transformed its business model during the last three years into a low cost airline based in the UK regions flying chiefly on domestic routes but also from the UK regions to France and Spain.
It has developed a network and market niche designed largely to avoid head-to-head competition with the leading low cost carriers Ryanair and EasyJet.
In recent months it has been developing new bases such as Norwich and Aberdeen, with Southend airport also under consideration, in addition to its main bases at Southampton, Birmingham, Exeter, Belfast City, Edinburgh, Glasgow, Jersey and Guernsey.
It is expected to announce next month an operating profit of around £10m in the financial year to the end of March, its first operating profit in five years, compared with an operating loss of £9.8m in the year to March 2004 and a loss of £4.2m a year earlier.
FlyBE, the trading name of Walker Aviation, is owned by Jersey-incorporated Rosedale (JW) Investments, one of the family trusts established to oversee the estate of the late Jack Walker, the former steel stockholding millionaire and owner of Blackburn Rovers.
Jim French, FlyBE chairman and managing director, said the 118-seat E195 was better suited than larger jets to the “thinner” UK regional routes it operated, and it had comparable seat costs to larger jets on the shorter sector lengths flown by FlyBE. It would allow the airline to increase the number of UK regions it could serve with direct European services.
The Embraer jets will replace FlyBE’s fleet of 15 ageing BAe146 aircraft.
As part of the strategy to cut costs and prepare for an IPO or sale, FlyBE is greatly simplifying its fleet, which is being reduced from five to only two aircraft types, the Embraer 195 jet and the 78-seat Bombardier Q400 turboprop. The move will significantly reduce maintenance, crew and landing costs.
Earlier this year it agreed a deal with the Canadian aircraft maker for the acquisition of a further 20 Q400s, valued at $485m at list prices before discounts, for delivery during the next four years. That deal will take its total Q400 fleet to 41 making FlyBE the biggest operator of the aircraft worldwide.
Based on current firm orders the total FlyBE fleet will grow from 38 to 59 aircraft by 2009.
The group is also aiming to expand its Exeter-based engineering services by becoming a European centre for maintenance, overhaul and repair of both Bombardier turboprop and Embraer regional jets.