AMR Corp. may give the American Eagle regional unit a better chance of success in a spinoff under a plan to leave the planes and more than $2 billion in associated debt at American Airlines. American will keep the debt and lease aircraft to Eagle for a token amount, said a person with knowledge of the terms who wasn't authorized to speak publicly.
Fort Worth-based AMR has said it will give details in a regulatory filing this month. Eagle's viability is important for American because the small carrier now provides 95 percent of the bigger airline's regional passenger feed, and bringing in new partners would take months or years. A clean balance sheet would let a stand-alone Eagle cut operating costs, said Jeff Straebler, an RBS Securities Inc. debt strategist in Stamford, Conn. "If American is putting the planes on their books, that's an American issue," Straebler said in an interview. "It's no longer an Eagle issue. It becomes a different story versus a regional operator that is taking on the risk of the aircraft." Ed Martelle, an American spokesman, declined to comment on a stand-alone Eagle. While AMR's board approved the divestiture through a planned spinoff, American hasn't shared specifics such as how much Eagle stock would be awarded for each AMR share. Separating from Eagle is aimed at paring expenses by letting American seek cheaper commuter-flying contracts, including with Eagle. American has the industry's highest labor costs, and AMR has recorded three straight annual losses. Debt associated with Eagle's fleet is $2.5 billion, according to an AMR regulatory filing. That's less than what the planes are worth, said the person with knowledge of AMR's Eagle plan. No mainline airline has spun off a regional unit and kept planes and debt, said the person, noting that commuter carriers such as Continental Airlines' ExpressJet Holdings Inc. became independent through initial public offerings. Eagle's pilot union told members in July that American had agreed to take ownership of the regional carrier's 302 planes, without mentioning the debt. The union is part of talks between American and Eagle on a new flying contract that will set details such as rates. "With this deal, American has some understanding of where they are going to be five years from now and Eagle has a chance of being a stand-alone company," said Mike Boyd, president of consultant Boyd Group International Inc. in Evergreen, Colo. In Eagle's fleet, 72 percent of the planes have 50 or fewer seats, a size that has fallen out of favor as fuel prices have climbed. "For the regional business as a whole, the 50-seaters are an albatross with fuel at these costs," Straebler said. Eagle hasn't been able to add more 70-seat or larger jets to its fleet because of limits set in American's pilot contract. The spinoff would allow Eagle to operate bigger planes as it seeks contracts with other airlines. SUBHEAD: The proposal will give the regional unit a better chance of success to aid spinoff.
