Bombardier lands plane deal for $770-million

Ross MarowitsAmerican Airlines' American Eagle unit plans to exercise option for 22 CRJ 700 regional jets

Montreal — The Canadian Press Last updated on Thursday, Sep. 17, 2009 05:31PM EDT

Bombardier Inc. (BBD.B-T4.79-0.04-0.83%) is still hunting for commercial jet orders and won't say whether a 22-plane order from American Airlines valued at more than $770-million (U.S.) will help it to avert additional layoffs beyond what is already planned.

“We can't say at this point whether there will be an impact,” Bombardier spokesman John Arnone said in an interview. “The transaction is not yet finalized and we should know more in October.”

AMR Corp. (AMR-N8.801.4519.73%) announced Thursday that its American Eagle regional subsidiary has signed a letter of intent to exercise options for CRJ 700 regional jets as part of a $2.9-billion financing package.

“Today's announcement positions our company well to face today's industry challenges and allows us to remain focused on the future and on returning to profitability,” said Gerard Arpey, AMR chairman and chief executive officer.

Deliveries of the aircraft are scheduled to begin in mid-2010. The value is estimated based on list prices, but the airline is believed to have received a healthy discount.

The airline also plans to add a first-class cabin to its existing fleet of 25 CRJ 700 aircraft.

This is the first of several orders that may materialize over the coming weeks following an intense campaign by the company to boost orders and avert being forced to reduce its production.

Bombardier Aerospace president Guy Hachey said this week that he hopes the efforts will materialize in orders by the end of October.

Analysts said the early signs of recovery in commercial orders will be welcomed, although there remains concern about the decline in demand for business jets.

Bombardier is in the process of laying off 4,360 employees as it reduces production of business and commercial aircraft. Regional jets, which are sold to airlines, are estimated to account for 1,200 of the layoffs.

The CRJ backlog at the end of July was 116 jets.

David Newman of National Bank Financial said the order should help to avert a further production cut for CRJs next year.

“Clearly this order, which management intimated was sorely needed to prevent further production cuts and layoffs beyond that currently planned, should provide some comfort,” Mr. Newman wrote in a report.

Chris Murray of CIBC World Markets said additional orders for new planes this year, including those for the C Series, will provide additional comfort to investors about earnings and margins in the aerospace sector, which has been a drag on share prices.

“We believe early signs of recovery in commercial orders will be greeted positively, particularly for CRJ aircraft where some concern about the depth of the backlog does exist.”