Eagle For Sale?

Sep 18, 2002
64
0
www.usaviation.com
As AMR struggles, its Eagle quietly soars
Small-plane division is growing fast – and may be for sale soon


09:28 PM CDT on Monday, September 15, 2003

By ERIC TORBENSON / The Dallas Morning News

A North Texas airline growing 20 percent a year, and it's not called Southwest?

In fact, it's American Eagle, an arm of Fort Worth-based AMR Corp. that flies smaller planes to American Airlines' hubs.

It's kept a low profile in recent years as its big brother, American, has struggled and flirted with bankruptcy.

Eagle, on the other hand, has grown to become the nation's biggest regional carrier. In May, it broke into the airline industry's top 10, as measured by number of passengers.

That success has encouraged AMR to consider a plan that would spin off Eagle as a separate company. Company managers are busy preparing for that possibility.

"I think our value is not fully recognized," Eagle president Peter Bowler said. "We've been intentionally low key the last several years, but now we've got the foundation in place to be the kind of carrier we want to be."

AMERICAN EAGLE AT A GLANCE
Employees: 11,139
First flight: Nov. 1, 1984

Fleet size: 305 planes

Passengers carried in 2002: 13.9 million

Passengers carried since 1984: More than 125 million

Revenue in 2002: $1.3 billion

Daily flights: More than 1,400

U.S. cities served: 133 in 33 states

Foreign countries/overseas U.S. territories served: 18

Average trip length: 312 miles

Longest trip: Los Angeles to Bentonville, Ark. – 1,147 miles

Shortest trip: St. Thomas to St. Croix – 45 miles

SOURCE: American Eagle


If AMR decides to sell part or all of Eagle, now may be the time. The carrier is expected to grow by more than 20 percent in 2004 as it takes delivery of 42 new regional jets. This year, it expanded its schedule by about 17 percent.

Investors love a good growth story, but Eagle's rapid expansion is expected to slow after 2004 as it accepts fewer new planes. It would be a lot harder to sell Wall Street on a "growing slower than before" airline.

A second big factor in Eagle's spin-off concerns AMR's pension plans, which are about $3 billion short of the cash needed to pay future retirement claims.

That shortfall isn't unusual among the struggling big airlines, and they're all looking at using shares from newly independent regional carriers to close the gap.

"It's all about finding a way to keep the heat on the house during the winter without burning up all the furniture," said Robert Mann, an airline consultant who has worked with American Airlines' pilots union.

Houston-based Continental Airlines spun off its regional carrier, ExpressJet, last year and used $100 million of the money raised to cover shortfalls in its pension plan.

Continental's experience "has a bunch of airlines thinking about doing the same thing," Mr. Mann said.

But selling Eagle shares might not be as easy for AMR as cashing a check, say consultants and Wall Street experts with experience in initial public offerings.

"If Eagle's numbers aren't pristine in every respect, then it's going to be a very difficult sell," said David Menlow, president of IPO Financial Network, where he scouts new public offerings. "This has really become a buyers' market."

Airline consultants also say the market might have had its fill of regional airlines.

ExpressJet stock is lagging below its original selling price of $16 a share. Northwest Airlines also hasn't followed through on a plan to sell shares of its regional carrier, Pinnacle Airlines, to the public.

One problem is that not all regional carriers are doing as well as Eagle. Their revenues are almost always linked to the fortunes of their bigger partners.

Atlantic Coast Airlines' marriage to United Airlines, for example, became a liability when the nation's No. 2 carrier filed for bankruptcy in 2002.

As it reorganized, United asked Atlantic Coast to lower its rates, a move that would have cut deeply into the regional carrier's profits.

The regional carrier refused and instead announced a plan to operate independently out of Washington's Dulles International Airport. Wall Street didn't react favorably, and Atlantic Coast's shares tumbled by more than a third.

Eagle's ties to American could hurt how its stock would fare, Mr. Menlow said.

"The health of the parent company and the intentions of the parent company would be key factors," he said. "If the deal is viewed as an effort to shore up the balance sheet of AMR, it's going to be difficult."

The company lost more than $5.2 billion in the last 2 ½ years, though it appears to have stanched the fiscal bleeding this summer. What's less clear is how AMR will fare in the fall and winter – when airline revenues traditionally slump.

"I don't think AMR needs the cash as much as they did before – they've improved their position this summer," said airline analyst Ray Neidl of Blaylock & Partners. "A spinoff is something I've suspected they'd do for a couple of years, but I think they can get a better price for it if they wait."

What's it worth?


It's tricky to calculate what Eagle might be worth. Mr. Bowler, the carrier's president, projects Eagle's 2003 revenue at about $1.5 billion, but that doesn't tell the whole story.
Some industry experts look to Continental's experience with ExpressJet for hints. ExpressJet's current market value – the number of shares multiplied by the price – is $900 million, and a number of analysts suggest Eagle could be worth more.

"That's the shortcut way to come to a value, by looking at ExpressJet," said Barbara Beyer, president of aviation consulting firm Avmark Inc.

The true value could vary by hundreds of millions of dollars. And how much AMR would see from the sale would depend on how much it wanted to sell. Continental, for example, still owns about half of ExpressJet.

Mr. Bowler, meanwhile, is concentrating on improving Eagle's operations – on-time performance and baggage handling among his priorities – and preparing his employees for the dozens of new jets set for delivery.

"Our passenger service ratings are at the highest point they've ever been," he said.

Eagle also has benefited from American's trouble. The larger airline, seeking to pare costs by $4 billion a year, has cut service by about 15 percent in the last two years, some of which has been transferred to Eagle.

"We'll have lots of opportunities backfilling for American," Mr. Bowler said.

Labor problems


As with any large carrier, Eagle has its share of labor difficulties. Its flight attendants union has been negotiating a new contract since 2001, and Eagle asked a federal mediator last week to intervene.
Bill Hennessey, president of the flight attendants union, describes the talks as going "poorly."

Eagle's pilots union also has complained about what it says is management's lack of respect.

"One of the most frustrating parts of our relationship seems to be the inability to be constructive," said Dave Ryter, vice chairman for the chapter of the Air Line Pilots Association that represents Eagle pilots.

"Over at American, before they put out a change in a manual they'll engage the union and say to them, 'Take your safety guys and tell us what you think of them,' " Mr. Ryter said. "Here, we find out about changes the day after our pilots find out about them because we can't ever seem to engage in a constructive atmosphere."

Pilots union officials say they aren't concerned with the effect of a potential sale on their jobs, but the uncertainty around it unnerves many of their members. "It's something that AMR is always telling us is on the table," union president Herb Mark said.

Will AMR look to sell? Company officials aren't saying either way.

"We don't speculate about hypothetical scenarios," said Gus Whitcomb, spokesman for AMR and American.


E-mail [email protected]
 
What will happen to the crews if Eagle is sold? I along with a bunch of furloughed AA fas were recently hired by Eagle. I have another job offer from another regional and I'm wondering if i should take that one instead. There is just so much uncertainity in this industry.
Urgh.
Diva
 
I hope AA would not do something silly like that! American Eagle has given a lot of advantage to AMR in terms of having more Flexiablility in determining what routes in should service that would feed their mainline services and also AMR can easily swap services that demand an American Eagle service to replace a mainline one that is not doing well. Right now AA is retiring their fokkers and the need for the American Eagle regional jet is very important to replace thoes services that were once fokkers. Futhermore look at United, they don't own any of their regional carriers but they have contracts with them for their service and recently they have had a disagreement with one of them and that one has announced that they will end their contract with UA and opperate as an independent LCC. Therefore Ual is left at a big disadvantage by not having a regional to feed there IAD services and this is the road I strongly believe that AMR should not take.
 
Andre1980 said:
I hope AA would not do something silly like that! American Eagle has given a lot of advantage to AMR in terms of having more Flexiablility in determining what routes in should service that would feed their mainline services and also AMR can easily swap services that demand an American Eagle service to replace a mainline one that is not doing well. Right now AA is retiring their fokkers and the need for the American Eagle regional jet is very important to replace thoes services that were once fokkers. Futhermore look at United, they don't own any of their regional carriers but they have contracts with them for their service and recently they have had a disagreement with one of them and that one has announced that they will end their contract with UA and opperate as an independent LCC. Therefore Ual is left at a big disadvantage by not having a regional to feed there IAD services and this is the road I strongly believe that AMR should not take.
Crew room speculation has it that they are talking about an IPO to drum up some cash for expenses, specifically, the underfunded pension. Believe me, there are some people perturbed that they may be going to offer up part of the airline to pay for the A/A pensions when they are telling the F/A's and Mechanics that they can/t afford to give us a raise during our current contract negotiations.

BTW, I doubt that they will offer up enough stock to lose controlling interest in the airline.
 
What does the current APA contract say about domestic codesharing? Once spunoff, would it be possible for Eagle to purchase 100 seat aircraft and have AA codeshare on those flights?
 
AMR is planning a big announcement on or around October 1, 2003. I don't know if this has anything to do with the possible sale of AE or not. It would be a dumb move on AMR if the do sell it off. BTW, is Crandall still in the market to buy AE? After all he is now one of the Top Dogs at Amtrak.
 
Set it free!

AirwAr, domestic code share is verboten. If AA could do it now, transstates would be flying old DLX737-200's or our old F100's around with red, white and blue stripes.

Read Mike Boyds "Hot Flash" for september 15 at www.aviationplanning.com I think any money we could get out of Eagle right now should be grabbed.

:up:
 
wrx said:
AMR is planning a big announcement on or around October 1, 2003. I don't know if this has anything to do with the possible sale of AE or not.
Rumor has it that Eagle will be taking over some of A/A's gates on the H Concourse at ORD in November. It seems like odd timing to me to announce a sale and then take some of American's gates.
 
wrx said:
AMR is planning a big announcement on or around October 1, 2003. I don't know if this has anything to do with the possible sale of AE or not. It would be a dumb move on AMR if the do sell it off. BTW, is Crandall still in the market to buy AE? After all he is now one of the Top Dogs at Amtrak.
WRX;
Your's is an excellent question !
However, Your statement "might" read, "is Crandall out to "KILL" A/E.
Think about this.
Since (uncle Bobby's) Accention to the "fast track"/Amtrak(ESPECIALLY amtraks high speed service ACELA), I would stake my "bones" on the premise that "numero uno" Crandall will be using the ACELA program to become an even more lethal weapon, in the northeast corridor(BOS_PVD_NYC_EWR_PHL_BWI_DCA), plus near final plans for ACELA on the west coast(LAX_SFO, for starters, with PDX and SEA, not too far behind.

WRX, as someone who lives VERY near the actual rail bed,(1 mile), that ACELA goes over about 14hrs. a day X7 X365, I can tell you that this "Bullet Train" in the right hands(Crandall) has the STRONG potential to cause some airlines many sleepless "years", in certain parts of this great country.

Don't get me wrong, the ACELA program will only work in short to (somewhat short to medium markets) where the "right of way" is Electified, but IN those area's, which just happen to contain a HUGE population mass, It can't miss.
I've had ACELA "remove my baseball hat" from my noggin', as it went by me at "150 mph", as I stood safely by, CLOSE, but safely by.

My rambling point is this,
Crandall has been sitting uncharacteristically quet, for a long time. Now all of a sudden he shows up at AMTRAK.
IMHO, it's a safe bet, Crandall's not concerning himself with the once a day train, between Fargo ND to (somewhere) in Idaho.
Now NYC to DCA, well that's a DIFFERENT story !!!!!!!!!!!!!!!!!!

"All Aboard"

NH/BB's
 
AAviator said:
Read Mike Boyds "Hot Flash" for september 15 at www.aviationplanning.com I think any money we could get out of Eagle right now should be grabbed.

:up:
It's only common sense that at some point the market for 50 seaters would be saturated. Duh.

How much money does Boyd get paid for coming up with these brilliant observations?
 
First off, I don't think that AMR has any intention of "losing control" of AE to the point that they might become a competitor in some markets. However, AMR is very much aware that they do not have to own "controlling interest"--51%+--in order to control AE. If AMR owns the largest single block of stock--say anything in the 20%-40% range--they still effectively control the airline.

Because AE is a money-making org right now gives real value to their stock. Source of funds for AMR to make the honkin big payment that is due to the pilots' pension plan in the next few months.

Also, by not owning majority interest in AE, there might be a way for AMR to break/abrogate the SCOPE clause and the flow-through/flowback provisions of the pilots' contract. After all, United can't make any of its feeders take furloughed pilots from United. AND, if you don't own the majority of another airline, how can you tell them what stations to serve and how many aircraft to serve it with?

Another thought...
Going back to 1993-1994 timeframe--not too long after the f/a strike--AMR made a confidential "informational" presentation to the New York financial community--heavy hitters only, please--that their long-term (10+years) business plan was to move ALL domestic flying with the exception of transcons and heavy long-haul--i.e., 757 service on DFW-SEA, DFW-MIA type routes--to American Eagle. It is my understanding that, at that time, they planned to move all a/c smaller than 757 to Eagle's certificate. S80 and 737 pilots at AE would make the same as they would at AA. All other employees--flight attendants, agents, rampers--would make Eagle wages. Coud all the rumors be an indication that they are reviving this plan with updated modifications?
 
"With the exceptions of TRANSCONS, and heavy LONG HAUL":

By Jesus, this is the very thing (uncle bobby) Crandall was taking about (those) 10 years ago.(getting out of domestic flying)

Uh oh, the music is starting in my "cabesa",

"Where have you gone uncle "bob-bi-o", our nation(s)(airlines) turn their lonely eyes to you,"

"ooh-ooh-ooh,"

"What's that you say Mrs. Robinson, (uncle) Bobby has lefy and gone away"

"hey-hey-hey" (TO THE BIG "A"), AMTRAK !!!!!!!!!!!!!!!!!!!!!!!


NH/BB's
(seriously, I"ve got TOO much time on my hands) :D :rolleyes: :up:
 
jimntx;

I wholeheartedly agree with you, A/E "ain't goin' nowhere !!!!!!!!!!!!!!

Eagle has been AMR's secret weapon for a loooong time. So far they have'nt played their(AMR) eagle trump card yet. They been holding that "trump ace"(in their hand)for so long, I sometimes think that they forget that they're even holding it.
I get a sense that AMR is fiddilin' with their "chips", glancing at their "hand", and gettin' ready to "raise", or call somebody's "bluff" ____________"BIG TIME" !!!!

Hell, probably OUR's !!!!!!!!


NH/BB's
 
NewHampshire Black Bears said:
"Where have you gone uncle "bob-bi-o", our nation(s)(airlines) turn their lonely eyes to you,"
He is riding the choo choo train at 150+ mph up and down the track on the eastern seaboard. Laughing all the way
lol.gif
as he rebuilds Amtrak and our airlines continue to shrink, shrink and shrink!
 
jimntx, that was a good one. Thanks for the laugh! :D

Only one small problem,.... scope.

NH/BB, you really do have too much time on your hands.