WestJet founder inks Airbus deal to buy 60 Bombardier-made jets for startup
One of the founders of WestJet Airlines Ltd. has agreed to purchase 60 Airbus A220 aircraft for a new U.S. venture, marking the second order announcement since Airbus took control of the former C Series jet program from Bombardier Inc. this month.
David Neeleman, representing a group of investors, signed a memorandum of understanding at the Farnborough International Airshow in the United Kingdom on Tuesday, committing to buying 60 aircraft for the new airline he is launching in the United States.
Although it is a preliminary pact, it is the second major deal announcement since Airbus took the reins of the previously beleaguered CSeries Aircraft Limited Partnership (CSALP) on July 1, nine months after the joint venture between the two aerospace manufacturers was first announced.
“This U.S. airline startup’s decision for the A220 as the platform on which to launch their new business model is a testament to the passenger appeal and operating economics of this outstanding aircraft,” said Airbus’s chief commercial officer Eric Schulz in a statement. “This commitment confirms the important role the A220 aircraft now occupies in our Airbus single-aisle portfolio.”
Bombardier said in a statement that it was “very pleased” with the agreement, which “once again shows the value the partnership can bring to the program.”
Neeleman, who is a majority investor in the startup airline that has yet to be formally named, is also currently an investor in Portugal’s TAP airline and a controlling shareholder in Brazil’s Azul airlines. He also was a founder of JetBlue. He said in a statement that he believes improving conditions in the American airline industry will allow a new carrier to emerge.
“The A220 will enable us to serve thinner routes in comfort without compromising cost, especially on longer-range missions,” he said in a statement. “With deliveries starting in 2021, we will have ample time to assemble a world-class management team and another winning business model.”
The deal is worth $5.4 billion, according to list prices, although airlines usually get big discounts.
Last week, JetBlue announced it had ordered 60 Airbus A220-300 aircraft with the option to purchase an additional 60, a move analysts said could bolster the program’s ability to secure further orders at the marquee Farnborough air show.
Moody’s analyst Jonathan Root said in a report that discount pricing was likely the key factor in JetBlue opting to replace its Embraer E190 jets with the A220.
“Airbus did not disclose the value of the JetBlue order. But the earlier-than-expected announcement, and its timing so soon after the closing of the CSALP transaction with Bombardier and the Canadian province of Quebec, led us to believe that the airline secured a significant discount on the purchase price,” Root said, adding that he estimates the cost could have been $24 million to $28 million per aircraft on average, a discount of up to 72 per cent from list prices.
Canada’s Innovation, Science and Economic Development Minister Navdeep Bains, who is at the Farnborough air show to promote the Canadian aviation industry, said in an interview earlier this week that one of his goals while in the U.K. was to promote the aircraft formerly known as the CSeries. The Canadian government provided the company with a $372.5-million repayable loan in part to help finance the CSeries program.
“Right now, our No. 1 objective is market access and getting sales happening, because those sales mean more production at the Bombardier facility in Mirabel, Que., and more jobs in the shortand long-term,” Bains said.
“It’s truly an outstanding product, and we want to continue to focus on helping both Bombardier and Airbus sell more A220s.”
RBC Capital Markets analyst Walter Spracklin said in a note to clients on Tuesday that with Airbus at the helm of the program, the aircraft is gaining further traction.
“We expect the (joint venture) will continue to win orders of meaningful size, with longer-term valuation implications owing to Bombardier’s 34 per cent stake,” Spracklin wrote.