Eagle spin off?

[PhatSappy]

An AE IPO would bring a lot of cash into AMR, which could opt to sell 49% to the public and retain control of the AE Board of Directors. It makes a lot of sense.

The AMR shareholders would win too, as their stock's par value will increase, temporarily at least. Oh and the AMR BOD will get bigger bonuses too. Yep, that's gonna happen.

 

[FWAAA]

An AE IPO would bring a lot of cash into AMR, which could opt to sell 49% to the public and retain control of the AE Board of Directors. It makes a lot of sense.

Actually, your first sentence above makes almost no sense. Eagle's total value would hardly pay the legal, accounting, investment bank and consultant fees that an IPO would require. Yet you propose selling only half of that miniscule value to the public. Think about it: If an Eagle IPO would "bring a lot of cash into AMR," then you've got to wonder why AA didn't do it years ago?

The AMR shareholders would win too, as their stock's par value will increase, temporarily at least. Oh and the AMR BOD will get bigger bonuses too. Yep, that's gonna happen.

This paragraph doesn't make any sense either. AMR "par value" would increase? Nope. Did you mean "market value?" So owning half of Eagle (instead of 100% as it does now) would cause AMR stock to increase in market value? So how high would the AMR stock go if it sold half of Eagle for $100 million or even $1.0 billion? AMR would now have the cash but would have to buy every regional seat from someone else (no longer from wholly-owned Eagle). Those capacity purchase agreements (with their guaranteed profits to the regional) would quickly burn thru whatever cash AA would get from an IPO.

I don't see AMR even attempting an IPO of Eagle, and if it did, it certainly isn't going to magically increase the stock price of AMR. At best, AMR will just spin off the company by distributing the stock of Eagle to the AMR stockholders.

Members of the Board of Directors of AMR do not participate in the Performance Share Plan and are not eligible for bonuses.

 

[WorldTraveler]

AMR wants to sell off AE so that AA has a chance of gaining lower bidders for AE's flying. AA has been at a disadvantage for years in that they haven't been able to play one regional carrier against another in obtaining the lowest prices - which is exactly the way most of the rest of the US industry has managed its regional carrier costs.

There is no great value in AE or it would have been done before- and DL's experience w/ Comair - which operated a higher percentage of 70 seaters shows that regional carriers aren't worth much. The only reason there is consolidation in the regional carrier industry is because the buyers are other regionals who want to create enough mass so that they can dictate the terms of regional carrier feed. Principle is the same as what is happening w/ network carriers - consolidate to hold prices up to the consumer; the consumer of regional carrier servces are the network carriers.

AMR will spin off AE (in whatever percentage) only to the extent that it allows AA to begin putting some distance between AA and AE; offering AE the option to bid on work w/ other carriers is just a pseudoym for "AE will have to get its costs down"

AA is about a decade late in changing its relationship with AE and will pay a price for separating from them now.

 

[eolesen]

Do you really think a spin wouldn't involve a 5-10 year CPA? Seriously?

 

[will fix for food]

AMR wants to sell off AE so that AA has a chance of gaining lower bidders for AE's flying. AA has been at a disadvantage for years in that they haven't been able to play one regional carrier against another in obtaining the lowest prices - which is exactly the way most of the rest of the US industry has managed its regional carrier costs.

From the latest AMR 10K:

The AMR Eagle fleet is operated to feed passenger traffic to American pursuant to a capacity purchase agreement between American and AMR Eagle under which American receives all passenger revenue from flights and pays AMR Eagle a fee for each flight. The capacity purchase agreement reflects what the Company believes are current market rates received by other regional carriers for similar flying. Amounts paid to AMR Eagle under the capacity purchase agreement are available to pay for various operating expenses of AMR Eagle, such as crew expenses, maintenance and aircraft ownership. As of December 31, 2010, AMR Eagle operated approximately 1,500 daily departures, offering scheduled passenger service to over 175 destinations in North America, Mexico and the Caribbean. On a separate company basis, AMR Eagle reported $2.3 billion in revenue in 2010. However, this historical financial information is not indicative of what AMR Eagle’s future revenues might be if AMR Eagle were a stand-alone entity.

Can they get Skywest to bid less than "current market rates"? Possibly. But why would they divert assets from UAL and give them to AMR for less than they are currently getting at UAL?

There is no great value in AE or it would have been done before- and DL's experience w/ Comair - which operated a higher percentage of 70 seaters shows that regional carriers aren't worth much. The only reason there is consolidation in the regional carrier industry is because the buyers are other regionals who want to create enough mass so that they can dictate the terms of regional carrier feed. Principle is the same as what is happening w/ network carriers - consolidate to hold prices up to the consumer; the consumer of regional carrier servces are the network carriers.

I believe that is reason enough not to divest Eagle. If Skywest or Republic were to assimilate Eagle it gives them even more power to raise the rates. AMR would be paying higher rates than they are now and to an outside entity on top of it. What kind of business decision would that be?

AMR will spin off AE (in whatever percentage) only to the extent that it allows AA to begin putting some distance between AA and AE; offering AE the option to bid on work w/ other carriers is just a pseudoym for "AE will have to get its costs down"

That is the mantra. AE is the high cost regional operator. From a mechanics standpoint I don't see it. Our top out is lower than some of the other regionals and it takes us longer to get there than all the other regionals I believe. The pilot costs might be a different issue but so many of them are leaving that their costs will be plummeting.

Even Bain said Eagle's costs are down 20% and continue to drop.

AA is about a decade late in changing its relationship with AE and will pay a price for separating from them now.

Yep

 

[eolesen]

If AMR retained ownership of the airplanes (or even just a significant number of airplanes), then Skywest wouldn't neet to be risking any of their UA or DL flying. They'd simply hire pilots under their cost structure.

Capacity purchase agreements aren't something that goes out for bid every one or two years. It's usually a longer term, with some ability to increase/decrease flying as necessary.

 

[WorldTraveler]

Do you really think a spin wouldn't involve a 5-10 year CPA? Seriously?

which is precisely why they will have to dump the price or pay more for what they could on the market - which minimizes the value of the whole transaction.

If AMR missed the movement of the market, they aren't going to overcome it w/o paying a price.

 

[will fix for food]

If AMR retained ownership of the airplanes (or even just a significant number of airplanes), then Skywest wouldn't neet to be risking any of their UA or DL flying. They'd simply hire pilots under their cost structure.

Capacity purchase agreements aren't something that goes out for bid every one or two years. It's usually a longer term, with some ability to increase/decrease flying as necessary.

They better get started hiring then because the new pilot mins rules are coming.

Unless they are counting on hiring a bunch of laid off Eagle pilots. I am sure they would be happy to get laid off and start over flying the same planes.