AMR moves closer to Eagle spinoff

AP News
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Posted: Aug 11, 2011 11:40 AM
AMR moves closer to Eagle spinoff

The parent of American Airlines is one step closer to spinning off regional airline American Eagle as a separate company.

AMR Corp. described terms of the spin-off to AMR shareholders in a regulatory filing Thursday. It expects to complete the deal by year-end.

AMR tried to sell or spin off Eagle in 2007 but dropped those plans a year later when record-high fuel prices and the recession cut the value of regional airlines. It revived the plans last year.

Company officials declined to say Thursday whether they received any offers to buy Eagle.

Eagle operates shorter flights and connects passengers from secondary airports to American Airlines flights at hub airports. AMR thinks it can save money by putting that service up for bidding between Eagle and other regional airlines.

Eagle would operate regional flights for American for nine years after the spin-off, according to an AMR filing with the Securities and Exchange Commission.

Eagle had revenue last year of $1.2 billion, a tiny part of AMR's total of $22.2 billion. It operates 281 planes and 1,650 daily flights.

AMR says Eagle would transfer jets to American and lease them back. AMR would keep nearly $2 billion in related debt. Eagle would start with no long-term debt, AMR officials said.

While American uses an in-house company for regional flying, most other large U.S. airlines contract with independent operators such as Pinnacle Airlines Corp. and SkyWest Inc.

Dan Garton, the longtime AMR executive now leading Eagle, said consumers won't notice a difference from the Eagle spinoff. He said American will still pick routes and set fares and service.

"The vast majority of the regional airline business already operates in this manner," Garton said. "When you walk on an airplane, it says, `United Express operated by' and some fine print (naming the operator). That's the direction we're going."

As an independent company, Eagle should be stronger because it will be able to bid for work with other airlines besides American, Garton added.

Ray Neidl, an analyst with Maxim Group LLC, said expensive jet fuel has hurt regional airlines and made Eagle a growing financial burden on AMR. He said shedding the regional operation was long overdue.

Shares of AMR rose 11 cents, or 3.1 percent, to $3.62 in morning trading. They hit a 52-week low of $3.28 on Monday.

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