Another day, another spin goes by the wayside. The big news yesterday was the AMR Corporation (AMR and parent corporation of American Airlines) filing for Chapter 11 reorganization in what will be the second largest airline bankruptcy since 1980. A lot has been written about this situation already, but it is worth mentioning here because the company’s planned spinoff of American Eagle, its regional airline, has been shelved for the time being. The move had already been postponed into 2012 as a result of negotiations with the pilot union, but now, according to its SEC filing, the spin-off has been “placed on hold pending the outcome of the Chapter 11 case.” These things tend to go quickly right?
The news isn’t entirely negative though. American Eagle’s biggest issues, high labor costs and a fleet of outdated, low capacity jets, are likely to be improved upon as a result of the bankruptcy filing. As a result, the company should emerge in better shape than before. There is always the chance that the company will reconsider its decision to spin out the unit though, especially considering the fact there has been a leadership change. New boss, new ideas. Additionally, there is always reputational risk associated with bankruptcy which could hurt its standing with consumers.
This has now entered the realm of distressed investors (here is a link to the company’s restructuring site) so it is time to look elsewhere for now, but we will keep you updated if more information is released.
Disclosure: Author holds no position in any stock mentioned.