On Thursday, Republic Airways (NASDAQOTH:RJETQ) announced that it has signed a contract to purchase 47 new Embraer 175 aircraft from Brazil's Embraer (NYSE:ERJ), to buy five used E175s from a third party, and to lease one more. The airline operator also has taken out options to purchase another 47 aircraft from Embraer.
The reason: Republic also announced that it has reached an agreement to operate all 53 of its new planes under the American Eagle brand. This new "capacity purchase agreement," which begins in June, has Republic's Republic Airlines subsidiary acting as a feeder for American Airlines (UNKNOWN:AAMRQ.DL) hubs.
The agreement requires approval from the bankruptcy court adjudicating American's Chapter 11 bankruptcy case before it can go into effect. Assuming that happens, Republic says it will fly the planes in a 76-seat, two-class configuration and will begin introducing the planes to operation at the rate of two or three per month beginning mid-2013, until all planes are flying by Q1 2015.
The term of the agreement is said to run for 12 years from the date each plane enters service and so will run at least into 2027. Financial terms were not disclosed.
Republic shares are reacting positively to the news, up 3.1% to $8.95. Embraer shares are up even more -- 8.8% to $31.07.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Embraer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.