American Eagle CEO: Divestiture likely after AMR Ch. 11 process concludes

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Published: May 23, 2012

American Eagle CRJ700. Courtesy, AA

Last November’s bankruptcy filing by American Airlines (AA) parent AMR Corp. has largely put the planned divestiture of regional affiliate American Eagle on hold, but Eagle president and CEO Dan Garton believes AMR will return to the issue quickly after it emerges from the Chapter 11 process.

AMR has long wanted to sell or spin off Eagle (ATW Daily News, Nov. 29, 2007), but its efforts to do so have, for various reasons, failed in the past. Speaking to reporters at the Regional Airline Assn.’s  (RAA) annual convention in Minneapolis Wednesday, Garton said a divestiture was about to occur when AMR filed for Chapter 11.

“We were 60-90 days away [from divestiture] in October/November of last year,” he explained. “The stars and the moon were lined up [for a divestiture] and bankruptcy was the sole reason it stopped.”

He acknowledged there is “tons of uncertainty” in the Chapter 11 process, but predicted the Eagle divestiture will occur in short order once AMR exits bankruptcy. “I think the most likely outcome is Eagle emerges from bankruptcy … a leaner, more efficient airline a year from now,” he said. “That’s not only the most optimistic outcome, but the most likely outcome.”

While AMR’s business plan in bankruptcy calls for Eagle to remain as a “retained entity,” once the Chapter 11 process is concluded, it is “very much in my plan” to move forward with a divestiture, Garton said, adding that the bankruptcy process will make Eagle more attractive to potential investors.

“We will go into independence [divested from AMR] with lower costs from day one,” he said. “I guess if there’s an advantage to bankruptcy, that’s it … I believe the reason that [divestiture] will occur is because the strategy behind it is not tied to some financial engineering. We believe at AMR that it’s in the best interest of both companies [AA and Eagle].”

AA, he said, would like to “diversify” and grow its regional feed. Eagle, while still planning to serve AA under capacity purchase agreements in a significant way following divestiture, would like to pursue a wider variety of regional operations and serve multiple mainline carriers. Garton said Eagle would likely still provide about two-thirds of AA’s regional feed following divestiture.

“We’ll operate as much flying for American as we can,” he said. “But we know that American wants to diversify their regional feed … Strategically, [divestiture] feels like the right way to go. It’s not on the front burner now, but I think it will emerge following bankruptcy.”

Prior to entering bankruptcy, Eagle reached a tentative agreement with the Air Line Pilots Assn. (ALPA) on an eight-year labor contract for the regional’s pilots that it believed helped pave the way for a divestiture (ATW Daily News, Oct. 24, 2011). About 14,000 of AMR’s more than 85,000 employees work for Eagle. The regional carrier operates about 1,700 daily flights to more than 150 cities in the US, Canada, the Bahamas, the Caribbean and Mexico.

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