aa777lvr
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Would AA Sell Eagle

Thu Apr 05, 2007 11:00 am

I saw an article posted at work that discussed how Tom Horton, AA CFO recently hinted that Eagle may soon find itself being spun off or on the auction block. Anyone with information/commentary?

-AA777LVR
 
kingcavalier
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Would AA Sell Eagle

Thu Apr 05, 2007 11:06 am

This has been an option for AMR for quite some time. If it makes sense to AMR to spin off Eagle like CO did with ExpressJet then it will happen. It's a quick way to get cash. Eagle's costs are pretty high compared to other regionals.
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fxramper
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Would AA Sell Eagle

Thu Apr 05, 2007 11:15 am

Belated April Fools?

This makes absolutely no sense. Eagle is worthless without mainline - American. Horton is already on the shit list of many AA employees. There isn't any validity to this.

Quoting KingCavalier (Reply 1):
If it makes sense

 rotfl   rotfl   rotfl 
 
siromega
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Would AA Sell Eagle

Thu Apr 05, 2007 11:53 am

Well they spin it off and then AA and AE have an agreement for regional traffic and codesharing? Thats how it would work right?

Not that I think this is a good idea. I honestly dont know how the RJ carriers can cut costs anymore than they have already, they're at the whim of fuel prices since those small jets burn more fuel per pax than a larger jet. We all know the pilots arent getting paid a whole lot. The only thing I wonder about is whether or not this allows AE to buy bigger planes (90-105 seat RJs) since it may change the AA Pilot's union agreement in that AE is no longer under the direct control of AMR.
 
swmdal
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Would AA Sell Eagle

Thu Apr 05, 2007 12:03 pm

AMR spent the past couple of decades spinning off every good thing that AA developed during its CR Smith days, such as SABRE and Sky Chefs, the very things that kept AA ahead of the pack for so long. They were among the first to buy up their regional affiliates; why shouldn't they turn around and sell them off now? It's in keeping with recent AA "tradition".
 
akizidy214
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Would AA Sell Eagle

Thu Apr 05, 2007 12:06 pm

He was asked Delta selling Comair and then asked about AA selling Eagle. This is what he said “It is something that we continue to evaluate. “There are regional carriers who have lower costs than Eagle.” Duh.....! Eagle has been in the regional airline business longer than the others. Therefore their cost are going to be higher. Eagle is going no where. There will be some changes to reduce cost, but in the longrun AE is the most expierenced regional out there and not easily replaced so you can take that Bloomberg article with a grain of salt. In a couple of years other regional will be in the same boat fighting high MTX cost and saliries.

[Edited 2007-04-05 05:08:36]

[Edited 2007-04-05 05:09:40]
DCA
 
kingcavalier
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Would AA Sell Eagle

Thu Apr 05, 2007 12:45 pm

I was with AE for 13 years. There was discussions going on about AMR spinning off Eagle several years ago. It will only happen if it makes sense to AMR. You don't have to look farther than ExpressJet to see that it can happen. It could simply be a way to get Eagle's costs under control and to be more competitive.
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AAR90
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Would AA Sell Eagle

Thu Apr 05, 2007 12:51 pm

Quoting SirOmega (Reply 3):
The only thing I wonder about is whether or not this allows AE to buy bigger planes (90-105 seat RJs) since it may change the AA Pilot's union agreement in that AE is no longer under the direct control of AMR.

Not without prior permission of the APA.

Quoting Swmdal (Reply 4):
They were among the first to buy up their regional affiliates; why shouldn't they turn around and sell them off now? It's in keeping with recent AA "tradition".

The issue is "control" over the "product" being sold.

Quoting Akizidy214 (Reply 5):
He was asked Delta selling Comair and then asked about AA selling Eagle. This is what he said “It is something that we continue to evaluate. “There are regional carriers who have lower costs than Eagle.” Duh.....!

AMR management is continually "evaluating"... everything (at least they should be). Rumors of an AE spinoff have been a constant for 15+ years. In the end, management still prefers the control it has of the product with ownership more than than the limitations it would have if it contracted someone else to provide that same product.
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kingcavalier
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Would AA Sell Eagle

Thu Apr 05, 2007 12:56 pm

Quoting AAR90 (Reply 7):
In the end, management still prefers the control it has of the product with ownership more than than the limitations it would have if it contracted someone else to provide that same product.

So true. Just look at Regions Air.
Travel is fatal to prejudice, bigotry, and narrow-mindedness
 
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fxramper
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Would AA Sell Eagle

Thu Apr 05, 2007 1:12 pm

Guys, there are pilot agreements, mechanic agreements, ground services agreements.

MQ can't exist without AA, especially out of DFW. This is a pipe dream for money hungry Horton.
 
sllevin
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Would AA Sell Eagle

Thu Apr 05, 2007 1:54 pm

I think AMR may find it a much tougher offering than CO had with XJT. There's going to be broad concern that the sale would be little more than a dumping of Eagle with no intent on rehabilitating it.

In other words, the only way AMR will get any reasonable money for Eagle will be to assure everyone of a very long term future. No one wants to be a bagholder 5 or 6 years from now when AA sends all its regional flying to a different, lower cost company and leaves Eagle on the ropes (at best).

Steve
 
ScottB
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Would AA Sell Eagle

Thu Apr 05, 2007 2:21 pm

Quoting FXramper (Reply 9):
MQ can't exist without AA, especially out of DFW. This is a pipe dream for money hungry Horton.

I doubt that AA wants to rid itself of MQ as a regional partner, but AMR Corporation is sitting on a huge amount of debt and monetizing Eagle in some way would be a way for them to pay down a good portion of that debt. Continental managed to (in part) avoid bankruptcy and clean up their balance sheet by selling off ExpressJet bit by bit. While there are advantages to keeping your regional partner in-house, there are also disadvantages; it can be tough to keep costs under control. Delta got burned pretty badly by Comair, as we all have seen.

The big issue with anything AA might want to do with Eagle is the mainline pilots' contract. It puts some very strict limits on what Eagle can operate (and also on who can operate as a regional partner for AA).
 
Fleet Service
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Would AA Sell Eagle

Thu Apr 05, 2007 4:44 pm

If AMR didn't sell of Eagle during the dark days of 2003 when they teetered on the edge of Chapter 11, I certainly don't see them selling Eagle four years later, when the balance sheet is looking far better.
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InnocuousFox
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RE: Would

Thu Apr 05, 2007 10:29 pm

Why do you people insist on equating a sale of the company with a severing of ties between them as a mainline/regional partnership? As noted, ExpressJet still serves CO. Pinacle, SkyWest, Air Wisconsin, Mesa... all are separate airlines that are regionals. They also all work with mainline partners in a symbiotic relationship.

This is simply about a separation of bookkeeping. AA gets cash, Eagle gets independence. Will it happen? I don't know enough to call. Can it happen? Certainly.
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lighterthanair
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RE: Would

Fri Apr 06, 2007 2:00 am

Quoting SirOmega (Reply 3):
This makes absolutely no sense. Eagle is worthless without mainline - American. Horton is already on the shit list of many AA employees. There isn't any validity to this.

A little unimaginative, I must say...of course it's in the best interest of Eagle to have a mainline, and in the best interest of AA to have the feeder. That doesn't prevent a sale and subsequent commercial arrangement between the two. From a corporate finance perspective it can make perfect sense to divest. You don't have to own something to get the benefit of it.
 
PExDCA
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RE: Would

Fri Apr 06, 2007 2:00 am

Quoting InnocuousFox (Reply 13):
This is simply about a separation of bookkeeping. AA gets cash, Eagle gets independence. Will it happen? I don't know enough to call. Can it happen? Certainly.

This scenario could really be a WIN-WIN. Aside from the cash and independence issues, it could conceivably give AA an opportunity to contract out some regional flying to other regional carriers at a lower cost than they can achieve with Eagle, and at the same time it might free up some capacity at Eagle to bid on flying for folks other than AA that could be more profitable for them. I think this operational profitability and flexibility aspect of a spin-off is as compelling a reason as the cash to AA rationale.
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jetdeltamsy
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RE: Would

Fri Apr 06, 2007 3:11 am

Eagle has among the highest operating costs of any Regional airline.

Major changes must take place in Eagle's pay structure for the company remain under AA's ownership.

And AE pilots already feel like they are treated very poorly. I don't see them giviing up much in terms of pay as long as they feel so victimized.

It would be a shame for Eagle to be spun off because it creates a career path to mainline flying for Eagle pilots. That will be lost if the company is spun off.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
PSU.DTW.SCE
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RE: Would

Fri Apr 06, 2007 3:25 am

Everyone is reading too far into this, you have to take the article and interview into context.

All I get from this is a bunch of corporate non-speak.

Of course, its the requirement of executives to give vague non-decisive answers about confidential topics until they are ready to make such decisions public.

Of course they are evaluating this, and 5,000 other business decisions, you just don't hear about them in the public.

If he came out right and said yes we are selling them, then the markets, shareholders, analysts, employees, and customers would react.

If he came out right and said no we are not selling them, then the markets, shareholders, and analysts would react.

Basically they don't want to reveal their plans for strategic and business reason.

Plus, one must balance the one-time cash infusion over long term costs - both on a dollar amount, span of control, and customer service impact.
 
ScottB
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RE: Would

Fri Apr 06, 2007 3:33 am

Quoting Jetdeltamsy (Reply 17):
And AE pilots already feel like they are treated very poorly. I don't see them giviing up much in terms of pay as long as they feel so victimized.

It would be a shame for Eagle to be spun off because it creates a career path to mainline flying for Eagle pilots. That will be lost if the company is spun off.

Perhaps this is one of the "sticks" AMR management intends to use in contract negotiations with the Eagle pilots: "Play nice" on the contract or they'll spin off Eagle and the Eagle pilots lose the inside track to jobs at AA mainline.

Quoting ElmoTheHobo (Reply 14):
... and to lose a steady stream of revenue and a product that they have full control of.

Well, I certainly imagine that they have run the numbers comparing how much income Eagle produces for AMR versus how much interest expense could be eliminated by selling off Eagle and using the proceeds to pay down debt. "Full control" of the product didn't make ASA a better Delta Connection carrier than SkyWest.

Quoting Fleet Service (Reply 12):
If AMR didn't sell of Eagle during the dark days of 2003 when they teetered on the edge of Chapter 11, I certainly don't see them selling Eagle four years later, when the balance sheet is looking far better.

Actually... selling off Eagle at that time would have only been buying time; it wouldn't have fixed AA's structural problems which included, in large part, high labor costs. I'm of the opinion that AMR management used the bankruptcy threat at the right time to get the concessions that were needed to complete the restructuring of the business. I also believe that Delta spent far too long burning the furniture (mortgaging planes, selling off Worldspan, etc.), and that's why they ended up in bankruptcy.
 
UA772IAD
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RE: Would

Fri Apr 06, 2007 5:05 am

Quoting InnocuousFox (Reply 13):
Why do you people insist on equating a sale of the company with a severing of ties between them as a mainline/regional partnership?

From a marketing perspective it does because its all about brand recognition. The average customer, both a business and leisure does not differentiate the difference between, say Skywest and United (or even United Express) or Delta and Comair. Why do you think these airlines in their contracts clauses and stipulations that state their regional carrier must wear the mainline color scheme? Brand recognition and identity.

I think that while out of house/contracted out regional service has its benefits (much less of a burden on the company as a whole), it also has its disadvantages. Take these two examples:

The Cheyenne, WY fiasco in February-where customers were stranded because the cancelled flight departed without them. I forget who the carrier was. However, the USA today made a PR nightmare for UA because the aircraft was branded UnitedExpress and the customer service (not Ops) was handled by both UA and the regional affiliate (acting on UA's behalf).

The Comair crash in August. DL more than likely suffered from a bit of a dent it its reputation, because the aircraft was painted and branded Delta Connection- a subtle difference the media and the public do not recognize.

You could argue that the incidents or the outcome of them may have preciptated differently had they been handled in house.

Quoting InnocuousFox (Reply 13):
Why do you people insist on equating a sale of the company with a severing of ties between them as a mainline/regional partnership?

(From an operations standpoint, I agree with you though)
 
sllevin
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RE: Would

Fri Apr 06, 2007 5:08 am

Quoting InnocuousFox (Reply 13):
As noted, ExpressJet still serves CO. Pinacle, SkyWest, Air Wisconsin, Mesa... all are separate airlines that are regionals.

But XJT lost a significant amount of business at the first contractual milestone where CO could take business elsewhere.

If AA simply wanted money, they could issue bonds using Eagle as collateral.

Steve
 
flybyguy
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RE: Would

Fri Apr 06, 2007 5:19 am

Quoting ElmoTheHobo (Reply 14):
They tried to sell off executive. It didn't happen because the buyer didn't pay.

Why sell Executive Air and not any of the other AMR AE companies? I suppose if AMR does attempt to sell Executive Air again Texas billionaire R. Allen Stanford (Owner of Caribbean Star/Sun... and LIAT) might buy it up in an instant simply to dominiate the caribbean regional market with a virtual monoploy on inter-island travel.... and if such a sale materializes, Sanford would be dealing only with the United States, which in a small sense AE is not the only airline to fly to U.S. territories, but may be the largest player flying to international destinations in the Caribbean, thus the U.S. may not halt such a sale to Stanford if the monopoly does not directly affect its own territories.

[Edited 2007-04-05 22:21:45]
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planespotting
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RE: Would

Fri Apr 06, 2007 10:30 am

Quoting Swmdal (Reply 4):
AMR spent the past couple of decades spinning off every good thing that AA developed during its CR Smith days, such as SABRE and Sky Chefs

SABRE was the brainchild of Bob Crandall, and he made it into one of the greatest tools in all of revenue pricing management.
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HPAEAA
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RE: Would

Fri Apr 06, 2007 10:42 am

Quoting ScottB (Reply 11):
I doubt that AA wants to rid itself of MQ as a regional partner, but AMR Corporation is sitting on a huge amount of debt and monetizing Eagle in some way would be a way for them to pay down a good portion of that debt. Continental managed to (in part) avoid bankruptcy and clean up their balance sheet by selling off ExpressJet bit by bit. While there are advantages to keeping your regional partner in-house, there are also disadvantages; it can be tough to keep costs under control. Delta got burned pretty badly by Comair, as we all have seen.

ok.. hmmm.. here's my opinion... this above reply makes the most sense... BUT!

Arpey has gone on record multiple times saying that the simple fact is, MQ's costs are still lower than paying Regional carrier CASM+Profiet... simply put the product is still cheaper than paying someone else to do it...

The only way I see AMR spinning off eagle is if they need cash to order new Aircraft.. perhaps the expected cost of selling off the unit (yes cost, seeing as how much they paid for the carriers originally) was lower than the expected return on ordering a/c for replacing the MD80... they have publicly said that they are going to replace them soon, so they may need the cash to replace them... but the margin from this option might be higher than the capital markets... Let's see how the APA negotiations go before we hypothesize too far...
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Bicoastal
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RE: Would

Fri Apr 06, 2007 12:21 pm

Quoting FXramper (Reply 2):
Eagle is worthless without mainline

It would/could have a contract relationship with mainline, like UA has with its 5 or so United Express contractors. It gives AA more flexibility, gives them cash and gives them options. If AA doesn't want the spun off Eagle, they could/should put out an RFP to replace the existing Eagle operation on those routes. Competition breeds a more efficient product.

Quoting PExDCA (Reply 15):
This scenario could really be a WIN-WIN. Aside from the cash and independence issues, it could conceivably give AA an opportunity to contract out some regional flying to other regional carriers at a lower cost than they can achieve with Eagle

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jetdeltamsy
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RE: Would

Sun Apr 08, 2007 1:42 pm

Quoting Sllevin (Reply 10):



Quoting Sllevin (Reply 10):
I think AMR may find it a much tougher offering than CO had with XJT. There's going to be broad concern that the sale would be little more than a dumping of Eagle with no intent on rehabilitating it.



Quoting Fleet Service (Reply 12):
If AMR didn't sell of Eagle during the dark days of 2003 when they teetered on the edge of Chapter 11, I certainly don't see them selling Eagle four years later, when the balance sheet is looking far better.

Interesting comments.

AMR hired an "efficiency expert" who came in last fall to reviewed everything and how it's done at Eagle.

This outfit determined that Eagle flying, in its entirety, could be contracted out for $103 millioin less per year than AMR is currently paying Eagle. That isn't chump change.

Big changes are going to have to take place at Eagle for it to reamin an attractive asset for AMR . Eagle was recently (last week) rated the second lowest of the top 16 airlines in the US in terms of service. American was 10th, Eagle was 15h (Eagle is large enough in terms of revenue to be included in this study). Eagle employees are very senior and at the top of their pay scales. Don't look to AMR to be the benevolent employer that will work to maintain these high pay levels. Everything they do and everyone who works there is going to have to evolve into a more cost efficnet and less expensive cog in the gear that is Eagle.
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HPAEAA
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RE: Would

Tue Apr 10, 2007 9:30 am

MQ can be fixed... but honestly their going to have to pay and hire some talent at HQ to do so...
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jetdeltamsy
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RE: Would

Tue Apr 10, 2007 10:11 am

Quoting HPAEAA (Reply 26):
but honestly their going to have to pay and hire some talent at HQ to do so...

And in the field.

$10 an hour for a CSA at O'Hare gets you what you pay for. These folks could make more working almost anywhere in town. It's an absurdly low wage with absurdly low expectations. And VERY FEW job have the high level of technical expertise and customer service skills needed to be good at the job.

You get what you pay for, and that certainly applies to AE.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
Fleet Service
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RE: Would

Tue Apr 10, 2007 3:21 pm

Quoting Jetdeltamsy (Reply 25):
Eagle employees are very senior and at the top of their pay scales.

I have to disagree on that point, Eagle tops out at far less than we do at AA.About six dollars an hour less if you want to get technical.

As far as seniority, again, I have to disagree.Talking to a few of the Eagle guys I see on the field every day, their turn over is rather high and a "Senior Head" has at best six or seven years.


Eagle pay rates aren't the issue, high CASM RJ's are.
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SLCUT2777
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RE: Would

Wed Apr 11, 2007 12:16 am

Quoting PExDCA (Reply 15):
This scenario could really be a WIN-WIN. Aside from the cash and independence issues, it could conceivably give AA an opportunity to contract out some regional flying to other regional carriers at a lower cost than they can achieve with Eagle, and at the same time it might free up some capacity at Eagle to bid on flying for folks other than AA that could be more profitable for them. I think this operational profitability and flexibility aspect of a spin-off is as compelling a reason as the cash to AA rationale.

Besides the cash rational, I think this has obviously become a industry wide scenario. Look at how bad DL was burned by Comair and ASA, yet their now dubious former CEO Leo Mullin was targeting OO back in 1999-2000. I think this acquisition decision made nearly a decade ago was what really lit the fuse for DL to go Chapter 11 in 2005 as much or more than 9/11. But how times have changed. As noted in posts above CO has divested themselves of ExpressJet, and OO flys for UA as well as DL and now YX. ACE holdings, the parent company of AC is slowly spinning off their Jazz unit as well. I think there is no denying this trend will stop with AA and Eagle. I've long felt thy need to do this to fix their finances.
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HPAEAA
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RE: Would

Wed Apr 11, 2007 9:28 am

Quoting SLCUT2777 (Reply 29):
I think there is no denying this trend will stop with AA and Eagle. I've long felt thy need to do this to fix their finances.

not to say that it would, but with MQ's sole revenue source from AA, how much do you possibly think they could get? Let's remeber that CO just dropped Expressjet on a buch of routes, and they were good.... I don't think the divestiture would do much for the bottom line..
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ual777
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RE: Would

Wed Apr 11, 2007 9:28 am

Quoting Fleet Service (Reply 28):

I have to disagree on that point, Eagle tops out at far less than we do at AA.About six dollars an hour less if you want to get technical.

As far as seniority, again, I have to disagree.Talking to a few of the Eagle guys I see on the field every day, their turn over is rather high and a "Senior Head" has at best six or seven years.


Eagle pay rates aren't the issue, high CASM RJ's are.

Their pilot group is VERY senior especially with the AA flowbacks.
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