The consolidation of the U.S. airline industry continued Wednesday as two of the largest regional carriers announced plans to combine.
SkyWest Inc. agreed to pay $133 million in cash for ExpressJet Holdings Inc. in a move that marries the commuter operations of merger partners Continental Airlines Inc. and UAL Corp.’s United Airlines.
The enlarged airline would have 696 planes and handle 50 million passengers a year on some 4,000 daily flights.
The U.S. network airlines have sold or spun off almost all of their regional business, subcontracting the flying to operators like SkyWest, which plans to combine ExpressJet with the Atlantic Southeast Airlines business it acquired from Delta Air Lines Inc. in 2005.
Brad Rich, SkyWest’s chief financial officer, didn’t rule out further deals as the regional sector tries to handle pressure from the majors to cut costs and improve efficiency.
ExpressJet turned down a $3.50-a-share takeover approach from SkyWest in 2008, but accepted the new $6.75-a-share proposal. The airlines hope to close the deal in the fourth quarter.
Rich said the new deal is completely different as it has reached a new pact to fly on behalf of Continental that extends the existing term and will ease its aircraft replacement plans.
The enlarged SkyWest will be the largest operator of jets made by Embraer and Bombardier Inc.
Rich said SkyWest aimed to combine the airlines within 12 months, and forecast a 45-50 cent boost to annual earnings from $60 million to $70 million in cost savings.
SkyWest also plans to diversify by investing $7 million for a 30% stake in Vietnamese start-up Mekong Air, providing four regional jets and technical support.
ExpressJet shares recently doubled in price to $6.56, with SkyWest up 1.1% at $12.55.