United looking at deal to invest in regional airline ExpressJet: sources

Atlanta

UNITED Continental Holdings Inc is exploring a deal to invest in regional airline ExpressJet to boost its pipeline of pilots and expand service in the eastern and midwestern United States, people familiar with the matter said.

The Chicago-based carrier is looking at acquiring an ownership stake in ExpressJet among other options in negotiations that are still developing, said the people, who asked not to be identified because the talks are private. There's no guarantee the discussions will lead to a deal with ExpressJet, an unprofitable subsidiary of SkyWest Inc that already flies for United.

The tie-up would help United beef up the domestic network that feeds travellers to other flights, as the No 3 US carrier works to close a profit gap with Delta Air Lines Inc and American Airlines Group Inc. United has been adding dozens of flights between smaller cities and its largest airports, trips that can be more lucrative than the heavily-trafficked routes between big hubs.

Financial details of the potential transaction couldn't be determined. United declined to comment. SkyWest and ExpressJet didn't respond to requests for comment.

SkyWest jumped on news of the talks, climbing as much as 3.5 per cent in intraday trading on Friday.

United, which has a minority stake in CommutAir, is the only one of the three largest US carriers that doesn't own a regional airline outright. That can put United at a disadvantage in recruiting pilots.

Delta's Endeavor Air offers pilots a guaranteed interview at the mainline airline after a certain period. American's wholly-owned regional units have "flow-through agreements" that enable pilot hires to advance straight to a job at the major carrier without an additional interview.

United is treading carefully to avoid the labour turmoil that would come with acquiring a regional airline carrier outright, the people said. United management and leaders of the pilots union are already taking steps toward opening contract talks ahead of schedule, with a goal of forging a new agreement by early 2019, Captain Todd Insler, chairman of the United Airlines Pilots Master Executive Council, said in an Oct 20 letter to pilots.

One of the issues expected to loom large in the talks are the restrictions on the scope of United's Express unit, which subcontracts flying to commuter carriers. While United would like to add more Embraer SA E-175s to expand its reach to smaller markets, the regional operation has reached the maximum number of 76-seat aircraft allowed under the current pilot contract.

ExpressJet, based in Atlanta, had about US$1 billion in sales last year, with an operating loss of US$300 million that was widened by special items. The unit posted losses of US$34.2 million in 2015 and US$118 million in 2014, according to regulatory filings by SkyWest.

The carrier agreed in August to end a carriage deal with Delta earlier than expected. ExpressJet also serves American.

Until it was spun off in 2002, ExpressJet had been a unit of Continental Airlines, which merged with United in 2010. The main airports served by the regional carrier include Atlanta, Cleveland, Chicago, Houston and Newark, New Jersey. BLOOMBERG