AMR divesting regional carrier American Eagle

FORT WORTH -- AMR AMR will divest its American Eagle regional airline unit to better focus on running American Airlines, the world's largest carrier, and to calm restless shareholders.

The decision to offload American Eagle sometime in 2008, announced Wednesday afternoon, follows a strategic review of assets that AMR undertook partly in response to pressure from large shareholders seeking a better and quicker return. Divestiture could be through a sale or spinoff.

In September, FL Group, an Icelandic hedge fund that owned 9% of AMR's stock, began publicly pushing it to divest its AAdvantage frequent-flier program, American Eagle or other non-core assets including its American Beacon Advisors money management unit. AMR management reacted coolly, noting that such asset sales could have a long-term negative effect on the company's primary business, American.

But other hedge funds and investors also began pressing AMR for such divestitures. Over the past year the possibility of big airlines unloading non-core assets has become a major theme among non-traditional airline investors such as hedge funds.

Like most carriers' shares, AMR stock this year has performed poorly. Even after a 6.9% gain Wednesday to close at $21.98, AMR shares are still trading near their 52-week low of $19 set only last week. They're nearly 50% off their January peak.

Tom Horton, AMR's chief financial officer, said in an interview that the company has never been opposed to divesting non-core units. "It's something we've been working on for a while now and we now think it makes sense," he said of the pending divestiture.

Horton would not discuss AMR's thinking on the possible offloading of its frequent-flier program or its money management unit. "We're still conducting our review and thinking," he said.

Horton said it's premature to say what AMR would do with revenue from an American Eagle sale, but debt reduction has been a priority.

How much American Eagle would fetch isn't clear. But two years ago, Delta Air Lines dal sold the much smaller Atlantic Southeast Airlines for $425 million. AMR is the last of the USA's big network airlines to divest some or all of their regional carriers. Continental, Northwest and US Airways all have sold theirs. United never owned its regional affiliates. Delta still owns its Comair unit.

American Eagle flies smaller aircraft ranging from 34-seat Saab turboprop aircraft to 70-seat Bombardier regional jets.

A stand-alone American Eagle would rank as a major carrier by most measures. It expects revenue of about $2.3 billion this year, far in excess of the $1 billion mark that historically qualified a carrier for "major" status. The 305 planes in its fleet are more than in the combined fleets of JetBlue and AirTran.