AMR Said to Hire Evercore, Bain to Study American Eagle Options

By Mary Schlangenstein and Zachary R. Mider - Oct 19, 2010 1:33 PM

American Airlines parent AMR Corp. hired investment bank Evercore Partners Inc. and consultant Bain & Co. to examine options for its American Eagle regional unit, two people with knowledge of the matter said.

Eagle probably will be spun off to AMR shareholders because of a lack of potential buyers, although a sale still is possible, said one of the people, who asked not to be identified because the talks are private. The evaluation for Fort Worth, Texas-based AMR may take more than six months, this person said.

A separation of Eagle would allow American to seek lower- cost ways to serve regional routes and enable Eagle to compete for contracts with other airlines. AMR said June 10 it would study divesting Eagle, reviving an earlier review of a sale that ended with the unit being taken off the market in July 2008.

“The options are pretty limited at this point” to find a buyer, said Hunter Keay, a Stifel Nicolaus & Co. analyst. “I don’t know who that would be. AMR is incentivized to get rid of Eagle, because it’s a drag on their cost structure. A divestiture would fit well in their turnaround plan.”
An Evercore spokesman declined to comment, and a spokesman at Boston-based Bain wasn’t immediately available.

“We have and will continue to evaluate any number of potential opportunities but do not intend to publicize specifics,” Roger Frizzell, an AMR spokesman, said in a statement. “We will announce any decisions that are made if and when appropriate.”

Valuing Eagle

AMR doesn’t break out complete financial data on Eagle, such as debt or whether the unit is profitable. Revenue for American’s regional operations rose 13 percent in 2010’s first half to $1.1 billion. Eagle, which operated 281 aircraft as of July, has about 1,500 daily departures.

“In a spinoff, it’s difficult to justify too much value there unless you have a long-term guarantee of their ability to provide regional lift for American for an extended period of time,” said Keay, who advises buying AMR.

AMR rose 14 cents, or 2.2 percent, to $6.52 at 4 p.m. in New York Stock Exchange composite trading. The shares have fallen 16 percent this year. AMR may report a third-quarter profit tomorrow of $119 million, the average of nine analysts’ estimates compiled by Bloomberg, after seven straight losses.

Regional Consolidation



A possible sale of Eagle would follow three regional- airline deals since July 1. SkyWest Inc. is buying ExpressJet Holdings Inc. in a transaction valued at about $133 million when it was unveiled in August. Pinnacle Airlines Corp. is acquiring Delta Air Lines Inc.’s Mesaba for $62 million, while Trans States Holdings Inc. will pay $20.5 million for Delta’s Compass.

Evercore, the New York-based advisory boutique founded by Roger Altman, hired banker George Ackert from Merrill Lynch & Co. last year to focus on transportation and infrastructure deals. Ackert advised Delta on its 2008 purchase of Northwest Airlines Corp.

Bain is working with United Continental Holdings Inc.’s Continental and United airlines as they merge operations and helped Delta’s integration with Northwest.

AMR also would consider a private-equity infusion or a leveraged buyout for Eagle, Dan Garton, Eagle chief executive officer, said in a June interview.

About 77 percent of Eagle’s planes have 50 or fewer seats, a size that’s fallen out of favor because of operating costs and airlines’ demand for using larger, more-comfortable aircraft on regional routes to win more business fliers. Eagle can’t expand its fleet of jets with 70 or more seats because of a limit set in American’s pilot contract.

“The value of AMR Eagle is ultimately tied to management’s ability to extract concessions from mainline pilots that permit the carrier to fly larger 75- and 90-seat jets,” said Dan McKenzie, a Hudson Securities analyst in Chicago who rates AMR as “neutral.”

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net
To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.