Sky Talk

More details on possible American Eagle divestment

AMR Corp. has been very quiet about its proposed sale or spinoff of regional carrier American Eagle. Now, a bit of color has emerged in a letter from AMR to the Securities and Exchange Commission.

The airline told the SEC that it made "background materials and financial information" available to "interested parties" in May. AMR stressed that nothing has been determined or approved about the divestiture. Still, the company is hopeful that a deal can be inked by the end of the year.

In its letter, AMR also added that it "will have significant continuing involvement with AMR Eagle after the divestiture," suggesting that the airline will still be a major feeder for American Airlines.

- Trebor Banstetter

AMR to take up to $1.2 billion charge in 2Q

As if we haven't had enough American Airlines news today, AMR Corp. said in an SEC filing that it will take a charge between $1.1 billion and $1.2 billion to write down the value of its MD-80 and Embraer RJ-135 regional jets.

- Trebor Banstetter

"Major financing" in store for AMR?

Airline analyst Michael Derchin of FTN Midwest speculates that AMR may boost its already-sizable cash balance in the near future. He says in a report:

"AMR has $5 billion cash. Unencumbered assets provide additional sources of liquidity. We would not be surprised to hear about a major financing to bolster cash reserves before the summer ends."

He also thinks that there's a "reasonable probability" that American and British Airways can win anti-trust approval for a transatlantic partnership. And he is hopeful about avoiding Chapter 11: "AMR's stock is trading as if the airline will be filing for bankruptcy protection, which we believe is a low probability in view of its unrestricted cash, access to liquidity and business plan to generate adequate returns within a high fuel environment.

- Trebor Banstetter

Airline analyst loses mind

OK, we're kidding, James Higgins of Solebury Research hasn't gone insane. Still, one could be forgiven for thinking such a thing when a respected airline analyst switches his "sell" rating on AMR Corp., the parent of American Airlines, to a "buy." We've been told over and over again that the industry is doomed, right?

Actually, Higgins makes a case that there is reason to be optimistic about AMR's future. In a report issued last week, he writes:

Progress in AMR's revenue and cash flow generation is significantly more favorable than we had expected. That, together with better apparent liquidity enhancing firepower are leading us to raise (making less negative) our earnings estimates, boost our target price to $12 from $3,and take our investment rating on AMR up two notches to Buy from Sell.

We cannot rule out the possibility that AMR could be forced into Chapter 11 over the next 18 months or so, but the probability of that outcome is very much diminished relative to our previous view. We believe the shares are discounting an overly pessimistic outlook, and therefore we see significant upside opportunity in AMR.

Full disclosure: Higgins' report was brought to our attention by someone in American's finance department. And plenty of other analysts are still recommending that investors dump their airline stocks.

Still, the report's glimmer of hope is worth noting. It will be interesting to see if more analysts revise their opinions as well.

- Trebor Banstetter

AA agrees to pay $345,772 to pilots, settling suit

Bloomberg News is reporting this:

American Airlines agreed to pay $345,772 to a group of 353 pilots to settle U.S. charges it discriminated against them over vacation and sick leave while they were performing military duty, the Justice Department said.

American agreed to resolve a 2006 government class-action lawsuit that accused the world’s largest airline of violating a 1994 law that prohibits discrimination against employees on military leave. The government’s lawsuit charged that the pilots, who will share the $345,772 payment, weren’t allowed to accrue vacation or sick-leave benefits while on military duty at the same rates as other pilots who were on non-military leave.

The individual pilots’ payments will average about $980.

“The sacrifices made by our armed forces, including military reservists, are invaluable to our nation,” Attorney General Michael Mukasey said in a statement. “No member of the military should be disadvantaged for choosing to serve our country and for answering the call of duty.”

Besides paying the pilots for the loss of sick leave and vacation, the airline agreed to credit employed pilots with sick leave valued at $215,000, the Justice Department said.

The settlement resolved the government’s first class-action lawsuit filed under the 1994 Uniformed Services Employment and Reemployment Rights Act. The Justice Department filed the case in 2006 following a referral by the Labor Department.

“We have helped more than 300 service members who just wanted their benefits back after answering the call to duty,” Labor Secretary Elaine Chao said in the statement.

- Scott Nishimura

Graves leaves AMR board

Earl G. Graves, founder and publisher of Black Enterprise magazine, has retired from the board of AMR Corp. effective today, according to an SEC filing this morning.

- Trebor Banstetter

Eagle pilots worried about airline's future

With their company being divested from parent AMR Corp., pilots at American Eagle are concerned about their futures. We spoke with Herb Mark, an Eagle captain and chairman of the local branch of the Air Line Pilot's Association, and he outlined the union's worries. You can read the story in this morning's Star-Telegram, and online here.

- Trebor

AMR's largest owner dumping stock

Trebor Banstetter told us in today's paper about the sell-off of AMR stock after several analyst reports came out as less than enthusiastic about the announced divestiture of American Eagle.

Now, you can add AMR's largest shareholder, FL Group of Reykjavik, Iceland, to the list of those dumping the stock.

The Associated Press is reporting that the investor announced this morning that it has cut its stake in AMR to 1.1 percent -- down from 9.1 percent.

The fund said it can earn higher returns investing elsewhere, the AP said.

Here's more from the AP:

On Friday, the fund said the divestiture of Eagle is a move in the right direction, but it said AMR’s “lack of clarity over timing, terms and valuation” of shedding Eagle “has done little to enhance value.”

And here's more on the initial announcement from AMR two days ago.

-David