American Airlines Shakes Things Up

This week has seen two significant announcements from American Airlines. Keep your eye on what these moves will mean for a carrier that seems to be altering its brand.

First, the airline's parent company, AMR Corp., announced on Nov. 28 that it was planning to divest its American Eagle carrier next year. AMR would not speculate about whether that divestiture would take the form of sale, spin-off or some other separation procedure.

AMR is making this decision to reduce its debt level and deliver additional value to shareholders, the company said in a statement. In advance of anticipated rises in fuel costs, look for other airlines to take a gimlet-eyed look at its ancillary units to decide whether getting leaner would help these parent companies stay afloat.

Some experts question whether the separation will result in the shareholder benefits the company is looking for. The planned divestiture of American Eagle "is best viewed as longer-term earnings neutral." J.P. Morgan Chase analyst Jamie Chase opined.

After the separation, American Eagle will likely continue to provide American Airlines with regional flying "on terms that reflect today's market for those services," the AMR statement noted.

The 2008 market will determine whether AMR will actually go through with the move. If the separation becomes nothing more than "expensive financing," the company may back off, the statement indicated.

The second noteworthy piece of AMR-related news came Nov. 30, when the Icelandic investment group FL Group revealed it had sold most of its stake in AMR Corp. Ironically, FL Group was instrumental in pushing for the American Eagle divestiture that was announced as a goal only two days earlier.

Unwinding American Eagle "is a move in the right direction," FL Group said in a statement, but it added that AMR's "lack of clarity over timing, terms and valuation has done little to enhance value."

FL Group made a splash in September of this year when it made public its advice to AMR that the company "monetize" its frequent-flyer program. The company's failure to do so was another reason for FL Group's sell-off, according to the investment group's website.