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Embraer-Bombardier Split $3.9 Billion American Jet Order

Embraer SA (EMBR3) and Bombardier Inc. (BBD/B) split an order for 90 jets from American Airlines Group Inc. (AAL) with a list value of $3.9 billion as the newly merged carrier adds larger planes to its regional fleet.

The purchase consists of 30 firm orders for Bombardier CRJ900 NextGen aircraft and 60 of Embraer’s E175s, American said today in a statement. Both models have 76 seats, more than were allowed under previous pilot contracts limiting the size of jets that could be assigned to commuter operations.

American’s order capped a year in which Brazil’s Embraer dominated sales in the U.S., with Montreal-based Bombardier’s last such deal coming in December 2012 from Delta Air Lines Inc. (DAL) Fort Worth, Texas-based American acted just three days after the company was created as the AMR Corp.-US Airways Group Inc. merger closed.

“Outside the Delta CRJ order last December, Embraer has been the clear winner in the U.S. regional jet re-fleeting movement this year,” Kevin Chiang, an analyst at CIBC World Markets Inc. analyst in Toronto, said today in a note to clients. “It’s good to see the CRJ end the year on a positive note.”

Embraer rose 0.3 percent to 17.75 reais at the close in Sao Paulo, while Bombardier’s widely traded Class B shares fell 0.4 percent to C$4.48 in Toronto.

Delivery Schedule

Deliveries will start in 2014’s second quarter for the CRJ900s and the first quarter of 2015 for the Embraers, American said. PSA Airlines, a US Airways commuter subsidiary, will fly the Bombardier planes, while American said it hadn’t determined which regional partner would operate the E175s.

American currently has no agreement with the Air Line Pilots Association representing pilots at its American Eagle regional unit to fly additional 76-seat planes, said Andrea Huguely, a company spokeswoman.

“We remain hopeful that we can come to a deal with ALPA early in the new year,” she said. AMR had put off the regional purchase earlier this year while still in bankruptcy, citing questions about financing, after U.S. antitrust regulators sued to stop the merger.

Bigger planes will let the merged company retire older, less-efficient 50-seat regional models. In addition to the firm orders, American is taking options for as many as 40 more planes from Bombardier and as many as 90 more jets from Sao Jose dos Campos, Brazil-based Embraer.

Buyers’ Discount

While the deal is valued at $3.9 billion based on list prices and data from the companies, buyers typically get a discount.

Embraer jets make up a majority of the fleet at American Eagle, which gave the Brazilian planemaker an advantage in the negotiations, CIBC’s Chiang said. American Eagle flies 184 50-seat and smaller Embraer jets and 47 Bombardier CRJ700s that have 64 seats, according to a regulatory filing.

“From that perspective, we view the announcement today as a positive for Bombardier,” said Chiang, who has a sector outperform rating on the stock.

Airlines are moving toward larger regional jets because the planes’ fuel bills can be spread across more seats than with smaller models. Bigger aircraft also are more popular with travelers and let carriers offer a first-class cabin.

The new aircraft “will greatly improve economic efficiencies by lowering operating costs,” Kenji Hashimoto, American’s senior vice president for regional carriers, said in the statement.

American has arranged backstop financing commitments for the 90 firm orders, according to a U.S. regulatory filing today. Backstop financing often is provided by aircraft manufacturers until an airline can arrange permanent funding.

AMR had decided before its 2011 bankruptcy filing to divest the commuter carrier because higher fuel prices had made flying the small jets too costly. Doug Parker, chief executive officer of the merged American, said in an interview last week that there are no immediate plans to separate Eagle.

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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