AMR eyes American Eagle spin-off
By Kyle Peterson
CHICAGO (Reuters) - AMR Corp <AMR.N> may spin off its regional unit American Eagle as an independent airline with a nine-year contract to fly for American Airlines, the parent company said on Thursday.
The proposal would help AMR win competitive rates for regional flying and allow Eagle to increase its business by competing for contracts with other airlines, AMR said in a regulatory filing.
"This industry is intensely competitive and it will not be easy to transform Eagle from a wholly owned subsidiary into an independent company overnight," said Dan Garton, Chief Executive of American Eagle, in a letter to employees. "I'm sure we will have growing pains along the way."
The company did not say when it would initiate the spin-off, in which 100 percent of the outstanding shares of Eagle would be distributed tax free to shareholders.
A review of the plan by the U.S. Securities and Exchange Commission could take up to three months. AMR also said an outright sale of the regional airline also was possible but not likely.
"If inquiries were to come our way ... we would certainly be interested and frankly obligated to take a look at them," said Beverly Goulet, American Airlines vice president of corporate development.
"We have had conversations with parties from time to time, but obviously at this point the game plan is to proceed with the spin-off," she said.
The company said that while all aircraft would remain on Eagle's operating certificates, prior to any deal, it expects to transfer to American all of its jet aircraft and the associated indebtedness.
The proposal also would give American Eagle an eight-year contract to provide some of American Airlines' ground operations, including baggage handling.
AMR said in July that it planned to divest Eagle, which provides about 90 percent of the regional flying for American Airlines. Eagle has more than 1,700 daily flights to destinations throughout the United States, Canada, the Bahamas, the Caribbean and Mexico.
The carrier, which started flying in 1984, has about 270 aircraft mostly made by Bombardier <BBDb.TO> and Embraer <EMBR3.SA>, according to its Website. The airline has more than 12,000 employees.
AMR has tried several times in the last decade to shed the regional affiliate, saying in 2007 it wanted to divest the carrier. The idea was tabled during the 2008-2009 economic downturn, but was later revived.
AMR declined to speculate on the value of American Eagle as stand-alone company, but noted that in 2010, Eagle generated $1.2 billion in revenue.
Ray Neidl, senior aerospace sector analyst with Maxim Group, said the regional airline's biggest asset would be its contract with American Airlines. He noted challenges facing regional carriers as major airlines tweak their routes and attempt to trim the cost of their operations.
The airline industry -- including regional carriers -- has suffered in recent years from an economic downturn and volatile fuel prices, but capacity cuts and consolidation have helped stabilize the business.
Its shares were up 3.1 percent at $3.62 in afternoon trading.
(Reporting by Kyle Peterson; Editing by Derek Caney and Gunna Dickson)