JetBlue (JBLU:US) Airways Corp. delayed delivery of some Embraer SA (EMBR3) jets, the smallest in its fleet, and ordered 35 Airbus SAS aircraft valued at $4 billion as the carrier focuses on larger, more-efficient planes.
The 24 Embraer E190 planes will arrive from 2020 to 2022 instead of 2014 to 2018, JetBlue said today in a statement. The Airbus order is for 20 of the upgraded A321neo model with new engines and 15 of the current version of that jet.
Chief Executive Officer Dave Barger’s E190 pullback extends a move away from the Embraer plane, with New York-based JetBlue now planning to cap the fleet at 60 after once placing orders for 100 with options for 100 more. JetBlue is working to trim expenses by adding the single-aisle Airbus planes, which consume less fuel and carry more people than the E190s.
“The shift to larger aircraft is a trend we are seeing in the industry as airlines seek to reduce unit costs by shifting to more aircraft with more seats,” Helane Becker, a Cowen & Co. analyst in New York, said in a note to investors. She rates JetBlue market perform.
The E190s carry about 100 passengers, while JetBlue puts 190 people in the A321, Airbus’s biggest narrow-body model. The order changes will reduce capital expenditures by $200 million over the next three years, the airline said.
JetBlue fell 3.9 percent to $7.24 at the close in New York, the biggest daily drop since May 1. The stock has advanced 26 percent this year. Embraer, based in Sao Jose dos Campos, Brazil, slid 6.5 percent to 16.65 reais in Sao Paulo, the most since July 11, 2012.
The fleet changes are “generally positive,” Savanthi Syth, a Raymond James Financial Inc. analyst in St. Petersburg, Florida, said in an interview. The shares probably fell on unhappiness that JetBlue has failed to meet a company target of boosting return on invested capital by an average 1 percentage point a year, she said. Syth rates JetBlue market perform.
JetBlue’s adjustments are “natural fleet management based on market opportunities and the company’s business plan,” Embraer said in an e-mailed statement. “It’s important to emphasize that there has been no order cancellation but a restructuring of deliveries overtime.”
Embraer, which said the plane will continue to be an important part of JetBlue’s business model, had delivered 482 E190s as of Sept. 30, with 78 on backlog.
“They’ve had a lot of successes over the past year or so in terms of other U.S. campaigns,” Peter Skibitski, a Drexel Hamilton LLC analyst in Atlanta, said of Embraer in an interview. “I don’t think this JetBlue deferral decision is going to have a meaningful impact.” He rates Embraer buy.
JetBlue said paring its Embraer fleet would occur “in the near term” to help cut spending and better match available seats with demand. In 2005, JetBlue was the initial customer for the E190. The deferrals involve $1.11 billion of jets, based on catalog prices. Buyers typically get a discount to list prices.
“While the E190 is critical to our continued success in Boston and San Juan, we are now at a point where our network growth calls for larger gauge aircraft,” Barger said in the statement.
The carrier now has 190 planes, made up of 130 Airbus A320s, one A321 and 59 E190s. The fleet changes will “significantly change our cost dynamics over the long run,” the CEO told analysts on a conference call.
Today was the fourth time that JetBlue had canceled or delayed E190 orders since 2006. The airline recently had complained about higher-than-expected maintenance costs on the E190 engines, which are made by a unit of General Electric Co. (GE:US) The airline said after an earlier delay that the jets weren’t as profitable as it had expected in some markets.
“The core reason behind the deferrals is the network needed only about 60” 100-seat planes, Chief Financial Officer Mark Powers said in an interview. “There’s always a place for a good 100-seater in our fleet.”
JetBlue also converted orders for 18 A320s to A321s, a step expected to cut fuel consumption per seat by as much as 15 percent, according to the statement. The changes let JetBlue add 15 incremental A321s to its fleet by 2017, with the 20 new A321neo arrivals starting in 2018.
JetBlue announced a $2.5 billion order for 40 neo aircraft from Toulouse, France-based Airbus in June 2011, and said then it wouldn’t add more than 75 E190s to its fleet as it focused on longer-range flying with the larger jets.
The airline also reported today that third-quarter net income rose 58 percent to $71 million, or 21 cents a share, from $45 million, or 14 cents, a year earlier. The average of 14 analyst estimates compiled by Bloomberg was 22 cents.
Sales rose 10 percent to $1.44 billion, meeting estimates.
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