ExpressJet To Fill the 50-Seat Aircraft Void at United

(MoneyWatch)  Last week, Mesa Airlines (NASDAQ: MESA) announced that United (NASDAQ: UAUA) had decided not to renew its contract to fly 26 fifty seat regional jets for the airline and speculation grew about who would fill the void. I would have thought United would have tried to stay away from adding any new 50 seaters, but I was wrong. ExpressJet (NYSE: XJT) wins the contest.

I spoke with ExpressJet spokesperson Kristy Nicholas about the deal, and she emphasized that the full terms aren't out there yet. This is just the preliminary announcement, but it's a lot more complicated than it looks on the surface. There are actually three deals at work here.

1. The Transitional Agreement - ExpressJet will begin flying 3 Embraer regional jets (ERJ-145) on December 1 and will slowly grow to 22 airplanes by March. This agreement will remain in place until May.
2. The Permanent Agreement - ExpressJet will operated under a capacity purchase agreement (where United takes all the risk and give ExpressJet a fixed fee) for 22 airplanes beginning May 1, 2010.
3. The Seasonal Agreement - ExpressJet has another deal to fly an additional 10 airplanes during the summer for United to augment capacity during the busy travel season.

That's a lot of airplanes, so where are they coming from?

Kristy wouldn't give me definitive answers since it sounds like the details haven't been fully finalized, but it seems pretty clear to me how this is going to work. Right now, ExpressJet has 30 airplanes in its charter division. Conveniently, 22 of those are outfitted with 50 seats while 8 are in a more luxurious 41 seat configuration. Hmm, 22 airplanes. Sounds familiar.

But that doesn't answer the question about where the extra 10 airplanes would come from for the summer. Kristy says that acquiring new airplanes is not likely, so that means it will have to come from the Continental system. Now, there is some slack in the Continental operation right now, and Kristy did mention that now that United and Continental are partners, that may help. Ah, that's very interesting.

I asked Kristy if, like in the United/ASA deal, ExpressJet had to give United a loan to get their foot in the door. She said no but that they had given the airline some warrants.

This is good news for ExpressJet. They've been trying to diversify for awhile, and this looks like the first deal that should stick.