American Eagle’s Future Likely to Be Decided in 2013, CEO Says

AMR Corp.’s $11 billion merger with US Airways Group Inc. will prompt a review of regional airline American Eagle’s fate, with a spinoff possible as soon as this year, the unit’s chief executive officer said.

“That is my hope and anticipation, but I completely understand the need to take a fresh look at it,” American Eagle CEO Dan Garton said of a potential spinoff in a telephone interview yesterday. “We’re going to go through a review of that strategy with our new partners, creating an agreed-upon, unified regional feed strategy.”

American Eagle, which ferries travelers to and from hub airports and provides more than 90 percent of American Airlines’ passenger feed, may also get larger regional jets that are more profitable to fly after the review concludes, Garton said. Even if it isn’t spun off, the carrier could benefit by transporting more passengers into a larger network of hubs under the combined American-US Airways, he said.

The regional carrier’s future hasn’t been decided, US Airways CEO Doug Parker, who will lead the post-merger company, said yesterday. While the combined airline will “need Eagle’s feed” of passengers, Parker said he didn’t know whether the regional carrier will remain a unit or be divested.

US Airways, based in Tempe, Arizona, owns two regional partners, Piedmont Airlines and PSA Airlines, that fly under the US Airways Express name.

Bankruptcy Disruption

AMR, based in Fort Worth, Texas, was close to spinning off Eagle before its Nov. 29, 2011, bankruptcy filing disrupted that process. American wanted to divest its partner so it could secure cheaper rates from other regional carriers.

About 80 percent of Eagle’s fleet is made up of planes with 50 or fewer seats that are costly to fly at high jet-fuel prices and not favored by passengers. Until AMR’s bankruptcy filing, the regional unit was limited to flying 47 jets with more than 65 seats.

“An acquisition of regional jets for Eagle to fly is something I’d see as very much front and center in terms of one of the first priority,” Garton said. “It’s certainly a first priority for Eagle and I hope it’s a first priority for the merged entity.”

Eagle flies a mix of regional jets from Bombardier Inc. and Embraer SA, according to American’s website.

Union Objections

Unions representing Eagle’s pilots, flight attendants, mechanics, baggage handlers and other airport ground workers last week asked the bankruptcy court to block a 12-year contract American announced on Jan. 24 for Republic Airways Holdings Inc. to operate 53 Embraer regional jets with 76 seats each.

AMR CEO Tom Horton said yesterday that he wasn’t sure whether the Republic contract would remain in place under the merged company.

The agreement “would severely divert the flying of large regional jets to a competitor and would needlessly undermine the value of American Eagle, threatening the livelihood of Eagle’s pilots and other employees,” the Air Line Pilots Association said in its court filing.

The larger Republic planes would let American better match aircraft size to market demand and diversify its regional feed, American said. In September, American signed a contract with SkyWest Inc. to operate 23 Bombardier CRJ200 regional jets under the Eagle name.

“As we are looking to do deals with third-party providers and diversify our feed, we absolutely believe Eagle, in whatever form, will be a part of our regional feed going forward as well,” Chuck Schubert, American’s vice president for network and planning, said in an interview before the merger agreement.

To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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