ExpressJet plans to defer deliveries of 27 Embraer regional jets over the next two years, shifting those deliveries into the 2005/2006 timeframe.

Pending a final agreement between ExpressJet and Embraer, the Continental Express carrier will amended its purchase agreement with Embraer to reduce deliveries of the ERJ-145XR (extended range) from 48 to 36 during 2003, and from 36 to 21 during 2004. This new delivery schedule is expected to reduce its capital expenditures by nearly $18 million in 2003, going from an estimated $92.8 million down to $75 million. However, the 27 aircraft deferred in 2003/2004 will be picked up over the next two year, increasing 2005 orders from two aircraft to 21 and adding eight in 2006.

The move also includes an amendment to the carrier's agreement with Continental, allowing it to decrease its planned capacity growth. However, it still expects an increase in available seat miles (ASMs) in 2003 of approximately 29 percent, going from the 6.2 billion ASMs flown in 2002 to between 7.9 billion and 8.1 billion this year.

Noting that the deferrals are in response to the continuing weakness and uncertainty in today's airline environment, Jim Ream, ExpressJet's president and CEO, said that the agreement to defer deliveries "represents the best interests of Continental and ExpressJet under current industry conditions by allowing us to maintain our long-term growth plans while taking steps to ensure that each of us remains viable and competitive during this period of unprecedented challenges."

Continental still owns 54 percent of ExpressJet and has significant control over its operations. In announcing the amendment to its planned capacity growth, ExpressJet said that Continental will extend by one year, to Jan. 1, 2007, the guarantee that ExpressJet will be the exclusive provider of regional jet service into Continental's hub airports.

The deferral had a quick impact on ExpressJet's financial standing, with ExpressJet itself expecting an approximate 24 cent drop in earnings per share (EPS) over the original estimated ESP prior to the announcement.

Raymond James & Assoc. estimates the drop in EPS forecast from $1.53 to $1.49 for 2003 and from $1.76 to $1.58 for 2004. This is based on the lower block hours to be flown, which is the basis for ExpressJet's revenue from Continental, and increased cost per block hour. ExpressJet estimated block hour increase during 2003 is now at 15 percent, 2 percent lower than its original estimate over 2002.