WestJet says it's pleased with price it will pay for new Bombardier Q400 planes

CALGARY – WestJet Airlines has selected Bombardier to supply the propeller aircraft it requires for a new regional service, putting to rest speculation that the order would go to a European rival of the Montreal-based plane manufacturer.

The Calgary-based airline announced Tuesday that it will take delivery of up to 45 of the Bombardier Q400 Next Generation planes over the next six years. They will be used for a new regional service that WestJet expects to launch next year.

WestJet didn’t reveal the cost but analysts estimated that, based on list prices, the orders would be worth up to $1.4 billion to Bombardier if all 45 planes are purchased. The actual price is often below list price, however.

Gregg Saretsky, WestJet’s president and chief executive, told analysts and reporters that the two companies had agreed not to disclose the price for the planes.

“Suffice it to say that there was a vigorous competition between the two manufacturers and we’re very pleased with the price we were able to secure these aircraft for,” Saretsky added.

The new planes, which have been used by other Canadian airlines and carriers around the world, will be used to bolster WestJet’s presence in some communities and add destinations that the airline currently doesn’t reach.

Saretsky said WestJet looked closely at planes by the European manufacturer ATR but ultimately chose the Bombardier planes due to their combination of seating, speed and range given the distance the planes will need to fly.

“We’re seeing great interest across the country from places like Penticton and Brandon who have even posted video on YouTube telling us why we should not forget their communities,” Saretsky said.

“With respect to which specific communities, we probably won’t be disclosing that until late Q4 or early Q1 2013.”

WestJet has placed firm orders for 20 Bombardier Q400s and taken options on 25 others.

The announcement was made as WestJet released its latest financial report, which included a record first-quarter profit.

Its net income was $68.3 million, or 49 cents, per diluted share; up from $48.2 million, or 34 cents per diluted share in the first quarter of 2011. Revenue was nearly $891 million, up from $772.4 million a year earlier.

“We are very encouraged with these very strong Q1 results and the margin expansion we were able to achieve as our revenue growth fully recovered the increased fuel costs, while we held our controllable costs relatively flat year over year — proving we’re not just another airline,” Saretsky said.

The company’s operating margin improved to 11.9 per cent, which was 1.6 percentage points better than a year earlier.

“These strong margins are once again among the top in the North American airline industry,” he added.

WestJet’s announcement will be good news for Bombardier’s Toronto operation, where the Q400 and Q400 NextGen planes are assembled. However, one analyst said he doesn’t think there will be much impact on the company’s profit.

CIBC World Markets analyst Michael Willemse wrote that Bombardier probably has a backlog of Q400 and NextGen orders that will take 20 months to fill.

“Regardless, we continue to believe profits from the commercial aircraft division are nominal for Bombardier and the order has limited impact on our valuation. At about 2.5 per cent of total Bombardier sales and limited profitability, this division receives far more attention than is warranted,” Willemse wrote.

On the Toronto Stock Exchange, WestJet shares (TSX:WJA) were up 29 cents or two per cent to $14.52.


Videos on the web aimed at having WestJet add certain communities to its new regional service: