June 22 (Bloomberg) -- Republic Airways Holdings Inc. agreed to buy 80 of Airbus SAS’s upgraded narrowbody jets for its Frontier Airlines unit, half of them smaller models that compete with Bombardier Inc.’s new CSeries.
Republic’s letter of intent is for 40 each of the A320neo and the smaller A319neo models, Indianapolis-based Republic and Airbus said today in a statement. The order is the first for the neo version of the A319, which offers more fuel-efficient engines than its predecessor and can carry about 130 passengers. The CSeries targets the 100- to 150-seat market.
Frontier’s Airbus order is only a minor negative for Bombardier since the carrier already flew Airbus jets and “commonality of fleet was a significant consideration,” Hamzah Mazari, a New York-based analyst with Credit Suisse Group AG, said in a note to clients. Frontier has a fleet of 54 Airbus jets, according to its website.
The airline’s parent, Republic, also has 40 firm orders for the CSeries, and probably will allocate those planes to four other carriers it owns, Mazari said. The CSeries order “remains in place,” said James Reichart, Frontier’s vice president of marketing and sales.
As Bombardier’s new jet endured an order drought of more than a year, which ended in June, the Montreal-based company defended the plane by saying its chief competitor was the A319, a model no one had purchased.
“We have a firm order from Republic which we’re very proud of,” John Arnone, a Bombardier spokesman, said today. “Different types of aircraft co-exist in airline fleets all the time. Republic is a valued CSeries customer.”
Bombardier slid 34 cents, or 4.8 percent, to C$6.69 in Toronto, the largest drop in four months. Republic fell 12 cents, or 2.6 percent, to $4.46 in Nasdaq Stock Market trading, the largest decline today in the Bloomberg U.S. Airlines Index.
Republic’s agreement to add the Airbus planes, which have a value of about $7 billion at list prices, comes as it pursues a $120 million restructuring plan for Frontier after buying the Denver-based airline out of bankruptcy in 2009. Frontier pilots approved money-saving concessions last week.
How Republic would be able to buy jets from Toulouse, France-based Airbus after agreeing to purchase 40 CSeries planes with a value of $3.06 billion wasn’t clear, said Bob McAdoo, an analyst at Avondale Partners LLC in Prairie Village, Kansas.
“The company says they question their own financial outlook,” said McAdoo, who rates Republic shares “underperform.”
Airlines typically make small deposits years ahead of taking delivery of new planes to lock in their spot in the production cycle, with the bulk of the price due a few years before the aircraft is made.
Frontier isn’t in a position to talk about financing yet, Reichart said in a telephone interview today.
Employees who were asked by Frontier to make concessions “understand that we’re doing the hard work right now to make this business viable in such a way that we can produce positive returns even with the current fleet at very high fuel prices,” he said. “Couple that with a growth platform with a much more fuel-efficient aircraft and that makes for a pretty bright future for Frontier.”
The Frontier Airline Pilots Association didn’t immediately respond to a message left at its office in Denver.