WestJet and EDC enter C$820m financing agreement for Q400s

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WestJet signed a C$820 million ($823 million) commitment letter with Export Development Canada (EDC) for Bombardier Q400 financing on 5 February, executives told investors today during the airline's earnings call.

The financing provides up to 80% of the delivery price of each aircraft with a 12-year term to maturity. The funds will be disbursed quarterly.

The Calgary-based airline will incur a non-refundable commitment fee of 0.2% per annum per undisbursed funds. Any amount that has not been drawn by 2018 will expire.

WestJet has 20 firm Q400 orders through 2016 and 25 options for delivery between 2014 and 2018. This financing would cover a "fair bit" of the firm and potential orders, executives say. The regional aircraft will be deployed in WestJet's new regional subsidiary Encore, with the first two deliveries scheduled in June.

WestJet also says it is "actively reviewing" financing options for three Boeing 737-800 aircraft scheduled to enter the fleet in the first quarter of 2013, including sale-leaseback arrangements. WestJet used operational cash for the first aircraft, which was delivered in January.

WestJet had signed a letter of intent with a lessor for a sale and leaseback transaction, but that arrangement was not finalised, executives told analysts. That can be attributed to "mostly operating considerations" and little to do with the financing itself, they said. But WestJet is continuing to consider that financing arrangement an attractive option going forward.

"We are continuing to pursue sale-leaseback," says WestJet chief financial officer Vito Culmone, adding that the carrier "may or may not" pursue alternative sources of financing for the Boeing 737s.

WestJet has an existing loan guarantee agreement in place with the United States Export-Import bank for financing on the 737s. The agreement supports about 85% of the aircraft purchase price. At the end of 2012, WestJet had 54 aircraft financed under agreements with the Export-Import bank, with a balance of debt of C$739 million.

The carrier plans to receive four more Boeing 737s this year in addition to the one it received in January. Those aircraft are scheduled to arrive in March, October and December, bringing the total 737 fleet up to 105 aircraft by the end of the year.