American Eagle Spin Still Possible? Don’t Hold Your Breath

In case you have forgotten, before AMR Corporation (AAMRQ) – American Airline’s parent company – entered into

English: American Eagle Airlines ERJ-140 at O'...

Chapter 11 bankruptcy, the company was planning on spinning off its regional airline American Eagle. The spinoff idea emerged after AMR couldn’t find a buyer for the troubled airline which was suffering from many maladies including being saddled with too many small, out of favor aircraft. The idea was that a spin could potentially open it up to new customers and while the premise didn’t seem too promising, but it would have left the company with a clean balance sheet and some options. Unfortunately, the plan was repeatedly delayed and finally put ‘on hold’ indefinitely once the bankruptcy filing occurred. For more details on the situation, check out our earlier posts on the subject here and here.

Could the spinoff still be resurrected? Well…based on recent comments by American Eagle CEO Daniel Garton, it sure seems that way. Speaking at a regional airline conference, Mr. Garton once again raised the possibility of an American Eagle spinoff after AMR emerges from bankruptcy and believes that shareholders “wouldn’t mind a spin as a solution.” He believes it might be attractive because it would allow AMR shareholders to sell off Eagle shares while still holding onto the parent.

Suuuuure. Of course this spin could end up happening, but I am not too optimistic. There is just too much uncertainty and too many other possibilities to truly put too much stock in the idea right now. AMR has no current plan to emerge from Chapter 11 and there are even discussions that the company could merge with US Airways (LCC) who might have a different plan for Eagle. Additionally, current AMR shareholders (if you like to play around in those pink sheets) could be completely wiped out and new shares issued. It is worth noting that there is some recent precedent for a post-bankruptcy spin as General Growth (GGP) successfully spun off the Howard Hughes Corporation (HHC) upon exiting its bankruptcy, but that was a pretty unique situation.

As non-distressed investors, there is still nothing to do here. Let us see if the company can take some positive restructuring steps during its time in Chapter 11. Some other comments from Mr. Garton suggest that is the case as he noted that the company was working with its lenders and banks to sort out the future of its out of date fleet. If the company can sort out its troubles, this might just end up being a situation worth getting interested in. We will keep you updated.

Disclosure: Author holds no position in any stock mentioned.

One thought on “American Eagle Spin Still Possible? Don’t Hold Your Breath

  1. John

    Hi, sorry, comment is not related to this post per say, but just wanted to say, you are doing a fantastic job with this blog, and I hope you keep up the good work! It’s definitely the only site I’m aware of that keeps track of spinoffs (the sarcastic humor employed in the posts is an added bonus!).

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