Air Canada Views RJ Order As Key To Its Emergence From Bankruptcy

Bankrupt Airline Orders 90 Regional Jets, Divides Order Evenly Between Bombardier, Embraer

Air Canada [OTC: ACNAQ], Canada's No. 1 airline and the world's eleventh largest, will buy a fleet of 90 regional jets (RJs) from Canada's Bombardier [Toronto: BBDb] and its arch rival, Brazil's Embraer [NYSE: ERJ], to boost its presence in the North American market.

The memorandum of understanding (MOU) will split the firm order evenly, with 45 planes coming from each manufacturer. The MOU also includes options to double each of the orders, for a total of 90 aircraft from each manufacturer.

The agreement with Bombardier includes firm orders for 15 CRJ-200 50-seat aircraft and 30 CRJ-700 Series 705 aircraft, with a dual-class cabin configuration of nine business class and 65 economy seats. The options include orders for 15 CRJ-200s and 30 CRJ-700 Series 705 aircraft.

The list price value of the firm order is about US$1.3 billion. By exercising the options, the deal could be worth up to US$2.7 billion.

Deliveries of the CRJ-200 aircraft are scheduled to begin in the third quarter, with deliveries of the CRJ-700 Series 705 beginning in the second quarter of 2005, subject to finalization of Air Canada's business plan. Bombardier said a definitive agreement would be signed early this year.

Air Canada and its regional affiliate, Air Canada Jazz, now operate 35 Bombardier CRJ-100/200 aircraft.

Air Canada's agreement with Embraer, including both firm orders and options, are for one aircraft type: the Embraer 190.

Under the MOU, delivery of the two-class configured 190s would begin in 2005. The definitive contract, which is subject to a number of conditions, is expected to be signed in this quarter. The firm order for the 190s, at list price values, will be worth about US$1.35 billion, with a potential value of more than US$2.7 billion if all options are exercised.

"Acquisition of additional Bombardier CRJ aircraft represents another key element of our long-term restructuring program," said Robert Milton, president and chief executive officer of Air Canada. "These new regional jets will enable Air Canada to compete more effectively, by providing increased point-to-point service to domestic and trans-border markets, thereby generating additional revenues.

"The Bombardier CRJ-200 was the spearhead of our rapid and successful expansion into U.S. markets in the mid-1990s, " Milton said. "We fully expect the new Bombardier CRJ-200 and Bombardier CRJ-700 Series 705 aircraft will play a significant role in the future growth and prosperity of Air Canada."

The Embraer 190 is one of a new family of regional jet airliners in the 70- to 110-seat market segment. The family is composed of the Embraer 170, 175, 190 and 195. The first in the family, the 170, is just completing its flight and certification program and will enter service early in 2004 with Alitalia [Milan: AZPRA], Italy's state-owned airline, and US Airways [Nasdaq: UAIR].

The Embraer 175 successfully performed its maiden flight on June 14, 2003, and certification is due in the second quarter this year. The Embraer 190 certification program is scheduled for the third quarter of 2005, followed by the Embraer 195 certification in the second quarter of 2006.

"Embraer's new generation jets will provide Air Canada with the ability to pursue new strategic market opportunities while offering customers low cost, high frequency jet service throughout North America," Milton said. "The Embraer jets feature industry-leading technology and comfort that is consistent with Air Canada's customer service philosophy in this highly competitive marketplace."

Steven A. Ridolfi, president of Bombardier Aerospace's regional aircraft division, said, "Air Canada is one of the most demanding airlines in the world in terms of the technical and economic aspects of the aircraft it selects. Their decision to acquire additional Bombardier CRJ-200 aircraft and introduce the Bombardier CRJ-700 Series 705 to the Canadian market is a strong endorsement of the well-proven economics and commonality benefits of the Bombardier CRJ family."

Mauricio Botelho, president and CEO of Embraer, said, "We are honored with the selection by Air Canada. They performed a very deep and comprehensive technical and operational evaluation of a number of aircraft models, which makes this decision even more rewarding for Embraer. It confirms that our Embraer 170/190 family has all the attributes a customer looks for in terms of performance, comfort and cost."

Air Canada, which filed for bankruptcy protection from its creditors in April 2003 and is in the midst of a court-supervised restructuring, said it hopes it will start taking delivery of the aircraft in the third quarter this year, provided it can finalize its business plan. The airline said it could afford the new jets as part of its restructuring plan.

As of Nov. 30, 2003, the number of firm orders for Bombardier CRJ Series aircraft stood at 1,289. Conditional orders and options numbered 1,289 for a potential CRJ program total of 2,578 aircraft. On Dec. 9, 2003, Delta Connection carrier Comair took delivery of the 1,000^th CRJ, making the CRJ program the eighth commercial aircraft program to have reached the 1,000^th delivery milestone (CRAN, Dec. 8, 2003).

Air Canada would become the third customer worldwide to order the Embraer 190, once the purchase agreement is finalized. As of Sept. 30, 2003, the Embraer 170/190 family had 245 firm orders and 308 purchase options.

>>Contact: Bert Cruickshank, Bombardier Aerospace, 416-375-3030; Doug Oliver, Embraer, 954-359-3414, email: doliver@embraer.com ; Andrea Bottcher, Embrear, 954-359-3432, email: abottcher@embraer.com .<<