American has unveiled plans to sell Eagle as several US majors consider divestitures

American Airlines parent AMR will sell off its massive regional unit Eagle some time in 2008, the first of a widely anticipated series of spin-offs or divestitures by major US carriers.

In announcing in late November plans to sell off Eagle, AMR said it is considering several alternatives to execute the transaction. It may be sold outright, listed separately on the stock market or be divested in some other manner. The sale could bring in as much as $800 million, but observers say that the price could be dampened if investors and purchasers believe that the Eagle divestiture is the first of a series of spin-offs that will crowd the marketplace.

American, facing pressure from shareholders, is also contemplating the sale of its mutual funds unit. An Icelandic investor, FL Group, had urged AMR to make divestitures, but sold off most of its 9.1% AMR stake the day after the Eagle sale was announced.

Several US carriers are now considering the sale of assets as they move to satisfy investor demands and raise the cash they need to face rising fuel costs. American, Northwest and US Airways are all now looking at selling their frequent flier units.

Delta, which sold off its troubled regional unit Atlantic Southeast Airlines in 2005, will likely sell its Comair regional unit in 2008. But Delta's chief financial officer, Ed Bastian, has said a sale of Delta's loyalty plan is ­unlikely.

Continental spun off its regional unit ExpressJet through an initial public offering in April 2002. It sold most of its remaining ExpressJet stake in February 2007. Northwest Airlines spun off its regional subsidiary Pinnacle Airlines in 2003 and in November 2007 sold its remaining stake.

AMR in 2000 spun off the reservations service now known as Sabre Holdings and has since sold its stakes in distribution firms Worldspan and Orbitz, and in communications provider Arinc. Its Eagle unit has a few inherent qualities that may limit its attractiveness to investors. Consultant Bob Mann says Eagle's fleet consists primarily of 37 and 44-seat regional jets but regional carriers now prefer larger aircraft in the 76-seat and up category.

AMR has also rewritten its feeder contracts with Eagle to terms favourable to AMR. Mann notes that any investor would want Eagle to have the flexibility to fly for airlines other than American, which may be difficult to secure.

The Eagle spin-off quickly drew union wrath, with its pilots union warning that any new owner would have to be careful before seeking cuts. The union representing American mainline pilots says it would seek a contract revision to prohibit members of any other union, including the Eagle pilots union, from flying American feeder flights.

Several carriers are now considering selling their frequent flier units

Source: Airline Business