AMR to divest American Eagle in '08

AMR Corp, the parent of American Airlines, plans to divest its American Eagle regional carrier after a drop of as much as 34 percent in the company's stock this year spurred some shareholders to push for asset sales.

Eagle, which expects revenue of about $2.3 billion this year, accounted for about 11 percent of AMR's total through three quarters. The separation, planned for 2008, may be a sale, spinoff or other transaction and also will include the Executive Airlines unit, the Fort Worth, Texas-based company said.

The decision follows investor demands for US airlines to take steps to raise their stock value, including selling nonessential assets. AMR said in October it was reviewing whether to change its ownership of Eagle, a financial-services unit, its maintenance operation or the AAdvantage frequent-flier program.

"This is a good first step," said Craig Hall, chairman of Hall Financial Group, AMR's fifth-biggest shareholder. "We certainly hope that they are still looking at spinning off the mileage program, as we believe the biggest opportunity is there."

FL Group hf, AMR's third-largest shareholder, in September urged the company to spin off AAdvantage, saying such a split could add more than $4 billion to shareholder value. AMR's American Airlines is the world's biggest carrier, and Eagle ferries travelers in smaller planes to American's hub airports.

"This is in some ways a result of FL Group's letter," Brian Nelson, a Chicago-based analyst at Morningstar Inc, said in an interview. "This could be the beginnings of at least a step forward in terms of helping airline shares."

Shares gain

AMR rose $1.42, or 6.9 percent, to $21.98 at 4:15 pm in New York Stock Exchange trading. The shares have fallen 27 percent this year and closed as low as $19.96, on November 20. The decline comes as jet-fuel prices have surged 51 percent. Fuel and labor are airlines' largest expenses.

Don Hodges, who manages the $700 million Hodges Fund and recently bought AMR shares, has said it would be "a positive" for the stock price if the company sold some assets. Hodges said yesterday that he hopes that in addition to Eagle, AMR sells American Beacon Advisors Inc, an investment-management unit that oversaw $57.9 billion in assets as of December 31.

"They're capable of selling their mutual fund, Beacon, which would bring in a lot of money, so those are the two I'd like to see sold," he said in an interview.

AMR doesn't break out complete financial data on Eagle, including whether the unit is profitable. Its passenger traffic through October was little changed from a year earlier.

Eagle, with 300 planes, operates about 1,700 daily flights to more than 150 North American cities. Executive Airlines flies under the American Eagle name in the Bahamas and the Caribbean.

The company has been working "for quite some time" to prepare Eagle for a sale or spinoff and the decision wasn't directly related to shareholder pressure, AMR Chief Financial Officer Tom Horton said in an interview.

"We've done a lot of the plumbing and legwork to get it ready to go, and it was the natural time for it," he said. "We thought it made sense irrespective" of shareholder demands.

AMR is still reviewing its other assets, Horton said. He declined to say whether the company might sell other units.

Eagle may not be as attractive to investors on a stand-alone basis as some believe, said Robert W. Mann of R.W. Mann & Co, an airline consultant based in Port Washington, New York.

"I'm betting this one flops, compared to expectations," Mann said. "Investors may not want a stable of 37-, 44-, 50-seat jets and older Saab" aircraft.

"Investors will want to diversify away from American Airlines-only flying, while AMR will want an exclusive, or protection from competitors," he said.

Bloomberg News

(China Daily 11/30/2007 page16)