ExpressJet Holdings, Inc. announced today that, while it continues to explore all of its strategic options, it has entered into a new seven-year capacity purchase agreement with Continental Airlines, Inc. The new agreement, which becomes effective July 1, 2008, will allow ExpressJet to continue flying the 205 aircraft currently flown for Continental for the foreseeable future while providing Continental the right after one year to withdraw up to 15 aircraft.
The new agreement significantly changes Continental’s governance rights under the original agreement, including easing change-in-control limitations on ExpressJet, reducing restrictions on ExpressJet flying into Continental’s hub airports, and removing the most-favored-nation clause, allowing ExpressJet to actively pursue flying for other carriers and to consider other strategic alternatives. The new agreement also removes Continental’s ability to terminate the agreement without cause.
The new agreement is based on fixed block hour rates that include various pass-through expenses, such as aircraft rent, fuel, airport ground handling and landing fees. The fixed block hour rates are considerably lower than the rates under the current agreement and will be subject to annual adjustment tied to a consumer pricing index. The company intends to return to Continental up to 39 aircraft previously released from the original capacity purchase agreement and to aggressively reduce costs in the coming months in response to the new agreement with Continental and the economic difficulties facing the entire airline industry.
“We recognize the current challenging industry environment being faced by all airlines and we need to react quickly to this deteriorating situation,” stated Jim Ream, ExpressJet’s President and Chief Executive Officer. “While this new agreement with Continental reduces uncertainty around the core aspect of our company, it certainly reflects the current operating environment and the evolution of the relationships between mainline and regional airlines. That said, we are pleased to have the opportunity to continue providing uninterrupted, seamless service to Continental and their customers.”
The company will retain 30 aircraft previously released from the parties’ current agreement at reduced rental rates to use as it deems appropriate.
ExpressJet and Continental also entered into a settlement agreement and release of all the parties’ claims relating to payments under the original capacity purchase agreement, including all disputes previously disclosed as possible matters for arbitration.
As previously announced, the company has filed a preliminary proxy statement for a special meeting of stockholders to be held on June 30, 2008 to approve the potential issuance of additional shares of its common stock in connection with its August 1 repurchase obligation under its convertible notes, as well as an amendment to its certificate of incorporation increasing the authorized number of shares of common stock. The company continues to work with its financial advisors at Goldman, Sachs & Co. and intends to enter into negotiations with certain holders of the convertible notes to find a mutually agreeable solution to the repurchase obligation.