=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/n/a/2007/11/28/financial/= f112301S10.DTL --------------------------------------------------------------------- Wednesday, November 28, 2007 (AP) AMR to Divest Its Regional Airline By DAVID KOENIG, AP Business Writer (11-28) 18:21 PST DALLAS, (AP) -- The parent of American Airlines said Wednesday it plans to sell or spin off its American Eagle regional carrier next year. Its shares rose 6.9 percent. Investors have been pressing AMR Corp. to sell the regional airline and other assets, moves they say could raise money and lift AMR's stock price. American Airlines is the nation's biggest airline. The industry has been under pressure from record fuel prices. But AMR has posted six straight profitable quarters as planes were more full and passengers paid higher average fares. Analysts said it was too early to put a price on American Eagle, but that high fuel costs could make it hard to get top dollar. American Eagle operates regional jets that connect American Airlines hubs such as Dallas-Fort Worth with smaller cities. It has about 300 planes and operates about 1,700 daily flights to more than 150 cities in the United States, Canada, Mexico and the Caribbean. It generates annual revenue of about $2.3 billion. Fort Worth-based AMR said in a statement that it is still studying wheth= er to spin off Eagle to AMR shareholders, sell to a third party or divest the carrier in some other way. Although planned for 2008, the timing of the divestiture could be affected by economic, industry and financial-market conditions, the company said. AMR said divesting Eagle "is in the best interests of AMR and its shareholders." AMR said the move would also give Eagle the chance to win new business and provide new opportunities for its employees. Shares of AMR jumped $1.42 to $21.98 Wednesday after peaking at $22.66 b= ut gave up 88 cents in after-hours trading. The shares had lost half their value since late January and are still near their 52-week low of $19. "The decision comes after a careful and deliberate evaluation of the strategy that will best enable us to continue to create value for our shareholders," AMR Chairman and Chief Executive Gerard Arpey said in a statement. Arpey said the company had built Eagle to be "fully capable of standing = on its own" and growing outside the AMR corporate structure. Chief Financial Officer Thomas Horton told The Associated Press that American Airlines expects to continue using Eagle as a feeder airline "for many years to come." He said a sale or spin-off could reduce Eagle's labor costs, making it a cheaper supplier of connecting passengers for American. An independent Eagle could grow by seeking connecting business from other airlines. As it grows and adds entry-level employees, "it also begins to average down the average seniority of the work force and can thus make Eagle that much more cost-competitive," Horton said. The American Eagle pilots' union didn't take a position on the announced divestiture. But union chairman Herb Mark said relations with AMR have been strained by the company forcing pilots to fly more hours in a day. "Any new ownership would be subject to our existing collective bargaining agreement, which contains protections for our pilots in the event of a sale or merger," Mark said. The Transport Workers Union said its lawyer was studying labor protections that could be triggered by a divestiture. The divestiture would also include Eagle's Executive Airlines Inc. affiliate, which operates American Eagle flights in the Bahamas and the Caribbean from bases in Miami and San Juan, Puerto Rico. Analyst James Higgins of Solebury Research LLC recently estimated Eagle's value at $1.15 billion. Ray Neidl, an analyst with Calyon Securities, declined to put a value on Eagle but said the divestiture would help AMR shareholders. "This is one asset that probably should be spun off," Neidl said. "It can be operated more cost-effectively as an independent business." William Warlick, an analyst with Fitch Ratings, said high fuel prices could make Eagle less attractive because its smaller regional jets are most costly to operate on a per-passenger basis. "There is considerable doubt if you can do this in a very difficult airline operating environment," he said. American Airlines' labor contract with its pilots forces Eagle to use smaller, less-efficient 50-seat jets instead of more-efficient 70- to 90-seat jets. Shareholders have been pressing the company to sell assets such as Eagle, the AAdvantage frequent-flier program, and its investment-management arm. They have said the stock market undervalues those businesses and AMR would be better off selling them. The most vocal of these investors has been FL Group, an investment fund based in Iceland that holds about 9 percent of AMR stock. The fund argued that AMR management was moving too slowly on divestitures, and he began contacting AMR directors. A spokesman for FL Group, Halldor Kristmannsson, said the fund couldn't give a detailed reaction to Wednesday's announcement yet but "we welcome any initiative that looks to enhance shareholder value." As recently as July, Arpey said AMR was not convinced that selling those side businesses would help shareholders. AMR officials also noted that AAdvantage was closely intertwined with American Airlines and that selling the frequent-flier program could have unintended consequences for the core airline. ------------------------------------------------------------------= ---- Copyright 2007 AP <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> If you wish to unsubscribe from the AIRLINE List, please send an E-mail to: "listserv@xxxxxxxxxxxxxxxxx". Within the body of the text, only write the following:"SIGNOFF AIRLINE".