Air Transport

American Airlines' parent company AMR is considering spinning off the carrier's frequent flyer program, AAdvantage, and regional-airline subsidiary American Eagle, as part of a hard look at how to improve shareholder value.

The spin-off of AAdvantage "is an interesting idea – one that has received a lot of attention at our company and, of late, in our industry as well – and one that we continue to think about,” says AMR chief financial officer Thomas Horton.

Other AMR groups that fall into the category of divestible assets include American Eagle, investment advisory firm American Beacon Advisors, and the airline’s maintenance, repair and overhaul (MRO) business.

                                                       © AMR

Horton acknowledges "our frequent flyer program is deeply intertwined with AMR and has been strategically integral to the long-term success of American Airlines and American Eagle. It is the cornerstone for how we interact with our best customers. Any value-enhancing action must be carefully analyzed within that context.”

In September Icelandic investment firm FL Group called on AMR to “immediately consider” strategic alternatives to increase value, including the spin-off of AAdvantage. The AMR shareholder said its conservative analysis “suggests a value upside of over $4 billion from unbundling AAdvantage”.

Citing "strategic and practical challenges" and the need to consider the strategic inter-relationships of the businesses, Horton says: “We need to evaluate whether there are any implications down the line that might cause what appears to be a smart decision on its face to be questionable in retrospect.”

With American Eagle, the potential benefits of divestiture include providing the regional carrier with “the structure, incentives and opportunities to grow its business while also enabling American to focus on its mainline business and ensure continued access to cost-competitive regional feed over time”, says Horton.

                                                                              © Bombardier

But he adds that AMR “must make certain that any transaction does not merely become an expensive financing, but one that liberates value and takes into account the impact on American”.

The least prepared for divestiture is the MRO business. AMR thinks it holds a lot of potential for growing third-party maintenance work, but this business is still being developed. “We believe that it would be premature to make a judgment on its long-term potential without the benefit of more time” says Horton.

Chairman and CEO Gerard Arpey says that, while AMR is looking very seriously at enhancing shareholder value, there is “no timetable” for potential divestiture.