Republic Airways has signed a letter of intent to buy 80 fuel-efficient Airbus aircraft, a deal valued at about $7 billion if the planes are purchased at list prices.
The Airbuses, which would replace leased Airbus aircraft beginning in 2016, would be flown by Republic subsidiary Frontier.
The order announced Wednesday for 40 A320neo and 40 A319neo planes (“neo” stands for “new engine option”) comes as Frontier is restructuring after a $55 million first-quarter loss.
Last week, Frontier pilots agreed to concessions in exchange for an equity stake as Republic looks for $120 million in savings to bolster the Denver-hubbed airline. Republic is seeking $70 million in new cash for Frontier operations.
Republic officials declined to say how the planes would be financed, saying the deal would have a “minimal” impact on cash over the next two years. Republic also would pay below list prices, they said.
Republic chief executive Bryan Bedford said the order shows confidence in Frontier’s future.
The Airbuses “will be a major factor in Frontier maintaining its position as an industry cost leader and will allow Frontier to continue to offer travelers low fares despite persistently high fuel prices,” Bedford said in a statement.
The A319neo and A320neo aircraft are 15 percent more fuel-efficient than those currently being flown.
The Airbus portion of Frontier’s annual fuel bill is about $600 million. A 15 percent savings to replace current aircraft with Airbus neos would be $90 million, or about a 5 percent improvement in Frontier’s profit margins, the company said.
Analysts and industry insiders raised questions about the deal.
“It is an effort to get Airbus some publicity and for Republic to get some positive publicity,” Avondale Partners analyst Bob McAdoo said Wednesday in a Bloomberg News interview. “It doesn’t commit anybody to anything and has no short-term financial impact.”
Steve Cowell, a Colorado aviation-safety consultant, said: “This is a memorandum of understanding, not a firm order,” adding that aircraft orders can be sold to other airlines.
Republic officials said last year’s agreement to buy 40 Bombardier CS300 jets remains, with deliveries beginning in 2015.
The Bombardier deal, valued at about $3.06 billion based on list prices, also includes options for another 40 CS300 aircraft for a total of $6.34 billion.
In a note to clients, National Bank Financial analyst Cameron Doerksen called the Airbus order “perplexing,” given that the Bombardier CS300 and Airbus A319neo are similar in size.
“The smaller sub-160-seat aircraft maintains significant operating capability from Denver’s hot and high geography to our international destinations,” Republic spokesman Peter Kowalchuk said.
Ann Schrader: 303-954-1967 or aschrader@denverpost.com
