American Airlines, the carrier reorganizing in bankruptcy, won court approval of an agreement for Republic Airways Holdings Inc. to operate regional jets for American.
U.S. Bankruptcy Judge Sean Lane in Manhattan on Tuesday approved the deal under which Indianapolis-based Republic will fly 47 Embraer SA E-175 76-seat aircraft for AMR Corp.’s American. Financial terms were redacted in court documents.
Republic made a huge deal to acquire aircraft in January in preparation for the contract with American. It agreed to purchase 47 new aircraft from Brazilian plane maker Embraer and lease a previously owned E-175. It also agreed to acquire five E-175s from an unnamed third party. Embraer’s contract with Republic includes options for another 47 aircraft orders. And if all 94 planes were delivered at list prices, the value of the contract could reach about $4 billion, Embraer said.
The agreement with Republic is part of American’s efforts to diversify suppliers of commuter flights beyond its American Eagle unit and to add larger regional jets that are more economical to operate at higher fuel prices. American, which plans to merge with US Airways Group Inc., was exploring a spinoff of Eagle when it filed for bankruptcy in November 2011.
American Eagle doesn’t operate 76-seat jets and “could not realistically purchase or gain access to such aircraft within the timeframe required,” American said in court papers.
Lane overruled objections to the agreement from unions at American Eagle. American, based in Fort Worth, Texas, established that the agreement is a “sound exercise” of its business judgment, Lane said.
“The increased use of regional jets has been front and center in this case for some time,” the judge said.
One benefit of the agreement is that Republic is capable of acquiring aircraft without financing support from American, Alfredo Perez, an attorney for American, said in court.
To reflect new business from the deal, Republic on Tuesday updated its investor guidance for 2013. The company said it now expects annual revenue in the range of $1.4 billion to $1.42 billion, up from earlier guidance of $1.36 billion to $1.38 billion.