Many reactions to this unexpected, but not surprising, news:
First and foremost, I think many knew that this was probably where thing were eventually heading. AA
has made no secret publicly or internally about wanting to either get Eagle's costs down to where its competitors' are or, failing that, get them off the books. They have gone a long way, but still have a very long way to go, in the first regard, but are still working on the second. Eagle has always been the red headed stepchild of the AMR family: mainline looks down on Eagle as the unwashed and chronically delayed white trash version, which is understandable considering the slave wages and benefits Eagle employees get compared with mainline.
Secondly, if AMR was going to sell Eagle, now is the time to do it. Well, actually the time would have been back in 2002-2003 when lots of regional operators were getting spun off and the market topped out. I doubt AMR will get more than 65-75% today of what they would have gotten then, but the market is only going to go down-hill for a high-cost operator like Eagle that is not positioned well for the future of the regional segment of the market (relatively high costs, 37-, 44-, and 50-seaters, etc.).
Third, it is going to be very interesting to see how AMR manages this break-up. AA
has operated Eagle as a stand-alone brand since 1984, and owned most of the Eagle carriers that were amalgamated into AMR Eagle since the late 1980s and early 1990s. Divorcing them from the mainline unit will be difficult, as the two companies' operations overlap in countless ways both at the field and back-office level.
How will they work out slots at LGA
, for example? I am sure that AMR will want to keep those, and then lease them back to whichever vendor is operating Eagle flying. And what about employee travel? What will benefits now look like for AMR employees on contract carriers (like Eagle)? And what about service contracts - in numerous cities across the U.S., AA
handles Eagle or visa versa. In the interim, I'm sure, that won't change, but in a few months or years, will AA
just dump all the Eagle contracts for an even lower-cost, worse-performing alternative?
But, that being said, AMR has also given Eagle an enormous amount of independence and flexibility all these years, and as such, it is well-positioned (at least from that standpoint) to be a stand-alone airline. It has its own executive team, own accounting and finance departments, own SOC, etc.
I think it will also be interesting to watch how AMR handles the split between mainline and Eagle without compromising the overall quality of the product. Say what you will about Eagle - and I am the first to do it, it's not exactly like flying on Emirates, or even AA
mainline - but it is a well-integrated product with AMR mainline. Eagle products and services are closely coordinated with the overall AMR brand, and Eagle employees are all proficient at doing their jobs within the context of the AMR operating environment - example: all of Eagle's gate agents are well-trained and knowledgeable with SABRE. How AMR manages to get rid of Eagle and its employees, without compromising the quality and degenerating to, say, a Mesa-level product, should be something to see. Essentially, in order to keep the AMR contract flying after the initial break-up period (probably 2-3 years), Eagle - like so many other regional competitors out there - is going to have to figure out how to deliver SkyWest or ExpressJet level quality, at Mesa CASM. Good luck.
I'll also be interested to see how AMR chooses to actually manage the divestiture. They could do a stock-based simple spin-off, a la SABRE 1999, and just issue shares of SABRE stock to AMR shareholders. However, that may add costly complexity and time to the transaction that AMR doesn't want to deal with, and may open up the possibility that the markets and individual investors - free to do what they want with their new 'American Eagle Corp.' stock, when issued, will value the spun-off firm at less than AMR or its advisers do. On the flip side, they could just sell it to a single party or syndicate of large investors, which would mean a fixed, agreed-upon price up front, but that might be difficult in today's tight financial environment where loose cash isn't just floating around like it was 12-18 months ago.
Of all of the things that have been speculated as possible divestitures or spin-offs: American Eagle, maintenance and engineering, AAdvantage, American Beacon, etc., I always thought Eagle was the most likely. M&E isn't quite ready for primetime yet - they still have to get their house in order and get their costs down to a truly competitive level before AMR truly contemplates selling them off. And even if M&E's costs were in-line, they are much more logistically critical to AMR operations than Eagle. Same with AAdvantage, which is - in my opinion - the least likely of the three to ever get divested, as it is so close to AMR's heart, and (minor detail, cough, cough) a highly profitable revenue stream. And as for American Beacon, I could actually see that being sold, but I'm not sure if it's worth the hassle, as they'd probably only get $200-300 million for it, but it doesn't bring in lots of management fee and investment revenue now as it is.
This Eagle deal may well be a bone being thrown at FL
Group and other finicky investors who have seen AMR stock drop by half in the last 18 months and want to show some return on their money to their own investors.
I do see opportunity here for both AMR and Eagle. If Eagle can continue to get their costs down, without further eroding their service levels, they could go on to become a real leader in the regional market segment. They do have some smart people, and Eagle - collectively - probably has some of the deepest corporate experience out there of any regional airline. A good deal of big-airline experience has flowed down to Eagle from Eagle is one of the oldest regional brands in the U.S., and the legacy of its forerunner carriers goes back decades, with lots of collective experience. Beyond that, Eagle also has probably more total experience running an airline than most other regionals, as its been doing its own standalone management and its own books for years, longer than some of its competitors have been in existence.
For AMR, as others have said, I think this is definitely an opportunity to rid themselves of a confining marriage to an uncompetitive partner, and finally open themselves up to cheaper, but hopefully still high-quality, regional feed. While I definitely don't expect AA
to drop the 'Eagle' brand as, as MAH
said, it is probably one of the most well-known in the U.S., I think it is virtually a foregone conclusion that other operators will be flying under that brand within the next few years. Hopefully, if AMR can get something worked out with their pilots (snowball in hell, I know), they can go out and get some feed using EMB175s or something a bit bigger than what Eagle has now, which would give them access to various new markets too big for Eagle's RJs but too small for mainline, or that - critically - require a First Class cabin to be competitive, but can't support something the size of an MD80.
Should be fun to watch!