The new Eagle/Jet Blue

[fltguymk]

http://www.bloomberg.com/news/2011-02-11/amr-board-may-be-near-decision-on-eagle-divestiture-union-says.html?cmpid=yhoo

Rumors are flying at Jet Blue of an April 11 2011 announcement. I just wonder if Eagle and Jet Blue are going to tie up? This article does not talk about the APA SCOPE clause at all......

 

[WorldTraveler]

The fact that there hasn't been a regional carrier IPO in years says that the chances of AMR succeeding in even partially making AE public is a stretch - which is probably why the article says AMR doesn't appear to be putting much effort into one.

Somehow I find it hard to believe that the APA is going to get excited about a deal that just moves AE from an AMR subsidiary to one that is owned by B6... or one that jointly operates for B6... while AA at the same time continues to pull out of markets and then codeshares with B6.

Right now, at least AE revenue stays at AMR.

 

[eolesen]

Floating Eagle off might still make some sense. The cynic in me says that it would allow AMR to declare bankruptcy without hindering Eagle's ability to survive, and vice versa.

And if Jetblue wanted to take an equity stake in Eagle? Let 'em. But I don't think you'd be hearing about it two months ahead of time.

 

[mwa]

and you sure didn't from this link either

 

[PHL]

This is step one in the bigger plan to merge with B6.

 

[WorldTraveler]

Given that B6 has costs about 2/3's of AA's, there will be no merger between AA and B6 because of incompatible cost structures.

What is possible is that AA could be trying to woo JetBlue to oneworld but, based on DOJ precedent, AA and B6 can never coordinate schedules or fares or share domestic revenues.

What could happen is that B6 could BUY AA and then could reduce AA's costs to B6 levels in order to compete in the domestic market.... I'll grant you that is far fetched but if AA is unable to turn the company around, they will do what they need to do in order to salvage some value from the company.

There is nothing that stops AE from continuing to operate should AMR file for BK; if anything it is more likely that AA would take AE into BK, strip out costs, and then sell it before exiting. But that also could happen with other key parts of AA's network as well - as I noted above.

What is NOT going to happen is that AA will merge with anyone with its current cost structure - which means AA's current labor contracts or labor relations.

 

[Mach85ER]

W,

Me thinks you don't understand what happens to union contracts in the event of your JB buyout scenario.

The APA contract goes with it whether they like it or not.

 

[PHL]

W,

Me thinks you don't understand what happens to union contracts in the event of your JB buyout scenario.

The APA contract goes with it whether they like it or not.

Would that be the case if AA first entered Chapter 11 and let the contracts be thrown out in BK?

 

[eolesen]

Mach is correct. APA's contract is a catch-22 that not only hamstrings AA, but also any regional carrier looking to do business with AA

It's the one reason I think you'll never see a successful spin-off of Eagle -- who would invest in a regional airline that can't fly anything bigger than 50 seaters?

It might be possible for an independently owned Eagle to try and challenge the legality of that portion of the scope clause on the grounds that a third party agreement shouldn't limiting their ability to do business with an unrelated entity. It's never been tested in court. That was an option Chautauqua considered, but they chose to simply pay off APA since they knew it was only a short-term need to have 170's on the Chautauqua certificate.

The other option would be for APA to reword that section in a side letter or new contract. I doubt it would happen absent a new contract, but maybe having the decades of uncertainty over Eagle resolved in short order would be enough incentive for the APA to agree to a side letter vs. screwing up the deal and having to keep Eagle under the AMR umbrella...