SkyWest to seek lease financing for E-175s, eyes additional contracts

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SkyWest Inc hopes to lease finance the 100 Embraer 175s that it ordered on 21 May, says chief financial officer Mike Kraupp.

"We prefer to lease finance, as long as the economics is good," he says during an interview with Flightglobal.

The St. George, Utah-based regional carrier will also consider export credit financing from Brazilian development bank BNDES and debt from commercial banks for the aircraft, says Kraupp.

The order is split between 40 firm E-175s that will fly under a long-term capacity purchase agreement with United Airlines and 60 that are conditional upon SkyWest securing agreements to operate the aircraft for another airline. There are also 100 options.

The order is valued at $8.3 billion - $41.5 million per aircraft - if all 200 E-175s are delivered.

The aircraft will meet SkyWest's short-term needs, says Kraupp. He cites the upgauging of regional fleets at all of the US mainline carriers to 76-seat aircraft, which is the maximum capacity allowed under recently updated pilot scope clauses.

"We secured the [additional] slots that will allow us to market the aircraft to other US majors," he says. "But it's very hard to speculate on where the aircraft might end up."

American Airlines and US Airways, who plan to merge in the third quarter, are the most likely contenders. They have room to add around 92 more regional jets with 66 to 76 seats based on a mainline narrowbody fleet of 798 aircraft, under a memorandum of understanding that they reached with their respective pilots unions in December 2012.

Delta Air Lines is unlikely as it has already ordered up to 70 Bombardier CRJ900s, which is the maximum allowed through 2015 under its pilots contract.

Other possibilities could include, for example, Alaska Airlines upgauging the five Bombardier CRJ700s SkyWest operates for it to E-175s.

The E-175 order does not conflict with SkyWest's order for up to 200 90-seat Mitsubishi Aircraft MRJ90s, says Kraupp. He says that the MRJs will cover its needs after 2017, which will include the replacement of older regional jets - both 50-seaters and ones with 60 to 70 seats.

"The majority of our fleet will expire by the end of the decade," he says.

SkyWest can convert some of its order for the MRJ90 into 70-seat MRJ70s.