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United to Buy $840 Million of Embraer Regional Jets

Embraer SA will sell 30 regional jets valued at about $840 million to United Continental Holdings Inc. as the world’s largest airline uses a new pilot contract allowing commuter partners to fly bigger aircraft.

Deliveries of the 76-seat E-175 jets from Sao Jose dos Campos, Brazil-based Embraer will begin in 2014, and existing 50-seat aircraft will be replaced, according to United. Embraer said yesterday that the Chicago-based carrier has options for 40 more of the planes.

“We are delighted to reinforce and extend our long-standing partnership with United,” Embraer said in a statement. Continental Airlines Inc., one of the carriers that merged to form United Continental in 2010, was the initial customer for Embraer’s ERJ 145 in 1996 and eventually built a fleet of 275 ERJs, the world’s largest, the planemaker said.

United is taking advantage of changes in the so-called scope clause of the labor agreement reached with pilots in 2012. Those terms specify the maximum size of planes that can be flown by pilots at lower-paying regional airlines, which helps reduce labor costs at major carriers such as United.

New Embraer 175s have an average book value of about $28 million apiece, according to Chantilly, Virginia-based consultant Avitas. Recent sales have averaged about $26 million, based on data compiled by Doug Rothacker, a Bloomberg Industries analyst in Skillman, New Jersey. United didn’t disclose a price.

Embraer gave an estimated value of $2.9 billion at list prices for the firm orders and options. Airlines buying multiple planes typically receive a discount to list prices, which at Embraer’s figure are about $41 million each for the E-175s.

United joins peers in getting rid of their smallest jets. Delta Air Lines Inc. ordered 40 Bombardier Inc. CRJ900 76-seaters in December as it retires 50-seaters, and AMR Corp.’s American Eagle reached a deal in January for Republic Airways Holdings Inc. to operate 53 Embraer 76-seaters.

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