CityJet deal with Spanish airline is ‘prelude to a merger’

CityJet has agreed a deal with a Spanish regional carrier to bolster its leasing business and attract new contracts in the regional air-travel market in a move it says is a “prelude to a merger”.

The Dublin carrier announced at the Farnborough Airshow it had signed heads of terms, or a letter of intent, with Air Nostrum which will, if it achieves regulatory approval, lead to the creation of a holding company to acquire the shares of the two companies.

"The heads of terms demonstrate our intent to get a merger," Pat Byrne, CityJet's chief executive, told The Irish Times. The combined group will have close to 100 aircraft and revenues of around €700 million, which would better prepare it to pick up more business from legacy carriers which are now following the North American trend of outsourcing regional routes.

Asked where group revenues could go to if the group merged, Mr Byrne said the target of “€1 billion is not over-ambitious within two or three years”. That growth projection is likely to attract private equity, Mr Byrne noted.

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“There’s a lot of synergies in terms of procurement and the ability to acquire more aircraft. We don’t see any job losses – in fact, we see jobs growth,” he said. However, Mr Byrne noted pilot recruitment is difficult, with Ryanair and Norwegian sucking up much of the talent pool. He said this development makes the group a “very compelling proposition” for prospective pilots.

Network

Headquartered in Dublin, CityJet operates a fleet of 44 regional jets on a network of wet lease and scheduled services across Europe. A wet lease arrangement is one where an airline provides an aircraft, its crew and maintenance requirements to another airline.

Air Nostrum, meanwhile, is based in Valencia, Spain, and manages a fleet of 50 aircraft.

In 2016, the last year for which accounts are available, CityJet recorded a loss of €30 million as it expanded and invested in new aircraft. Mr Byrne said the company is continuing to restructure, moving more and more into wet lease, although he noted the flagship Dublin-to-London City Airport route for consumers is a key part of the company’s offering and will continue.

Service

Amongst its clients are SAS, Brussels Airlines, Air France and KLM. Mr Byrne said the company will bid for the Aer Lingus regional business when it comes up for renewal. That contract is currently operated by Stobart Air.

Air Nostrum's president, Carlos Bertomeu, believes the deal will result in more cost-effective options for airlines outsourcing their regional networks.

Both airlines operate a similar fleet, with Air Nostrum using 30 Bombardier CRJ1000 jets and CityJet operating 22 CRJ900 jets.

The deal between the two carriers is subject to regulatory approval, and both companies said the preparation of “the relevant filings has begun”.