* WestJet signs letter of intent to buy 20 Bombardier Q400s
* Airline takes option on 25 more Q400s
* WestJet had eyed planes from Europe’s ATR
* WestJet profit up 42 pct, beats market expectations
May 1 (Reuters) - WestJet Airlines Ltd, Canada’s No. 2 airline, said on Tuesday it has selected Bombardier Inc to supply turboprop aircraft for the new regional carrier it is setting up to try to chip away further at dominant, but ailing, competitor Air Canada.
Shares in both WestJet and Bombardier rose after the deal was announced. WestJet also reported quarterly earnings on Tuesday that were well above market expectations.
The carrier said it has signed a letter of intent to buy 20 Q400 NextGen aircraft from Montreal-based Bombardier with the option of purchasing an additional 25.
In choosing Bombardier, WestJet selected a fellow Canadian company over planemaker ATR, a joint venture of French aerospace group EADS and Italian defense group Finmeccanica .
“I think it was right choice. Range, speed and flexibility were key drivers,” said Addison Schonland, a partner at airline consulting firm AirInsight, of WestJet’s decision to choose the Q400 over the ATR 72-600.
The firm commitment for 20 planes is worth around US$620 million, Stonecap Securities analyst Scott Rattee said in a note to clients. If the 25 options are exercised, the deal is worth US$1.395 billion at current list prices, he said.
WestJet said in February that it will launch a regional operation to serve smaller Canadian communities before the end of 2013. It said then that it planned to buy about 40 turboprops and was talking to Bombardier and ATR.
WestJet expects to announce its initial regional schedule using the Q400s later in 2012.
Its new regional airline takes direct aim at Air Canada, which is now the sole carrier on several domestic routes. The flights, under the Air Canada Express brand, are flown for the company by regional airline Chorus Aviation.
While Air Canada has wrestled with labor disruptions and high pension costs during the past year, WestJet, which is not unionized and has costs that are about a third below those of Air Canada, has continued to thrive and expand.
It reported a 42 percent rise in first-quarter earnings as it flew more passengers despite fare increases.
Earnings rose to C$68.3 million ($69.13 million), or 49 Canadian cents a share, well ahead of the 39 Canadian cents a share that analysts had expected. In the same period a year earlier, WestJet earned C$48 million, or 34 Canadian cents.
Revenue increased 15.4 percent to C$891 million.
Load factor - the percentage of available seats filled with paying customers - rose to 83 percent from 82 percent in the year-before quarter.
“We achieved our highest first-quarter load factor, improved the overall yield and made good progress towards our return on invested capital target,” WestJet Chief Executive Gregg Saretsky said, adding that revenue growth outpaced higher fuel costs.
First-quarter costs per available seat mile rose 4.2 percent, while revenue per available seat mile rose 6 percent.
Shares in WestJet were nearly 3 percent higher at C$14.65 on the Toronto Stock Exchange on Tuesday morning. Bombardier’s stock rose 2 percent to C$4.27.