Speculation: Liquidation of American Eagle
 

This was received from the Eagle MEC of ALPA:

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American Eagle Airlines
MEC Hotline
03/25/11

This Week’s Topics:

1. Update on Potential Divestiture of American Eagle

This week, the AMR Board of Directors met. One of the topics of discussion was the potential divestiture of American Eagle. Although the Board has yet to authorize the divestiture of American Eagle, we believe they will be in a position to do so shortly. The MEC is now operating with the expectation that a decision to divest could come as early as May.

Therefore, ALPA and company negotiators met this week to continue working on a ‘longevity initiative,’ a comprehensive plan to assist pilots who would like to transition to mainline carriers in doing so. This May, the final group of flow-through pilots who received a ‘make whole’ remedy (i.e., third or fourth year pay step at AA, retroactive B-fund contributions, etc.) will transfer to AA. Seventy-five percent of those who were offered the ‘make whole’ remedy accepted transfer to AA. That has provided for us a recent historical statistic from which to determine the types of elements that may make it possible for high longevity pilots to make the transition given their current life situation.

Once we have finalized a draft ‘longevity initiative,’ and now that our competitors have reported their 2010 financials, we will reevaluate Eagle’s competitive position in anticipation of our April MEC meeting. We are also continuing to move forward on the legal front by challenging AMR’s expressed desire to take ownership of Eagle’s aircraft prior to a divestiture. The MEC will be briefed on all of these subjects at the April meeting.

In addition, management announced today that they have reached an agreement with American Airlines to continue travel benefits for American Eagle employees exactly as they are today for a period of five years beginning at the time of divestiture.

The next all-pilot teleconference will be held on Friday, April 8th, at 1:00 p.m. Central Time. We appreciate all of the pilots who sacrificed their personal time to join last week’s teleconference and will continue to host them on a regular basis until there is some resolution to the question of Eagle’s future ownership structure.

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So if AMR keeps the planes after divestiture, there is no airline left. What would they do with the aircraft? Park them or let other regional airlines fly them? Five years of travel sounds like a severance package.

As far as i know it would be a precedent to shutdown an entire major airline without a bankruptcy or any other financial distress.

It would also leave a huge gap in AMR capacity.


I'd love to hear reason why liquidation might not happen.

I wouldn't be so sure that it would result in a liquidation. Perhaps a sale of the company and lease agreement between AMR and the 'sold' Eagle would be the most likely scenario. Many Major airlines lease aircraft to regional carriers that provide feed for them.

Companies divest (sell) businesses they own all the time, most of the time, it doesn't mean the assets will be liquidated.

Addressing the flight bennies, maybe if Eagle gets sold and planes leased back, you guys will have your AMR bennies for 5 years until something else is negotiated?... Although, when I was furloughed, I got to keep my DL bennies for 5 years. Hard to say what could happen.

Well American Eagle has been up for sale for a few years now. No one has bought us yet. Rumor has it that we're too big to be bought. The annual salaries to our pilots are $100 million higher than the next closest regional. That was before a lot of our senior pilots started flowing to AA though.

Another rumor is that Virgin American wanted to buy us but AMR didn't want them to have it.

Seems like AMR is dead set on getting rid of Eagle so they can get less expensive regional flying no matter what it cost them initially.

Also, all the ERJ's are coming up to the end of their second service life extension. Would it make sense to extend the service life again? I don't think so.

Actually Mesa looks to be a possible investor now.

Go on please. We are listening.

Yea, and a monkey just flew out of my arse:D

What kind of monkey?:p

The kind in my avatar :p........

I'd settle for one that throws feces at TSA :D....

Sorry for the thread hijack..... I saw an opening...... carry on Fellers

I created this thread as "The Possible Liquidation of American Eagle." Not "The possible Sale/Divestiture of American Eagle.

There is very little chance for a sale and a divestiture is almost certain. In any case, that was not the subject.

The subject is the possible LIQUIDATION of Eagle based on the letter from the Eagle MEC of ALPA.

title should read "The Absolutely Certain Sale/Divest of American Eagle"

as to the aircraft being at AMR and the list being at Eagle - look no further than July 1, 2010 - DAL has the same arrangement with CPZ

A divestiture IS a sale. That's what the word means. You are suggesting that AMR's potential divestment of Eagle will result in a liquidation of assets. I do not know the agreement (if there even is one) between Eagle and AMR especially pertaining to min fleet numbers/block hours flown, but a liquidation is one of many different things that 'could' be a possibility, however, unlikely IMO.

The thread title was a bit misleading as there is nothing in the letter to suggest that a liquidation of Eagle's assets were going to take place; just a potential divestment of the company. The same thing happened to Colgan, Compass, Mesaba, ASA, etc.

When Compass and Mesaba were sold Delta still held the leases on the planes and leased them to their new owners

Who would buy an airline without the planes to operate?

AMR has every right to keep the airplanes. They will initially contract with AE for at least several years to keep flying them...otherwise nobody will buy.

A potential investor is essentially buying a feed contract and a seniority list. When the contract is up, the new owner can (and will) squeeze the pilot group for catastrophic concessions in order to remain competitive to rebid their own flying. If the pilots (and other labor) don't give up enough, some or all of the flying goes to low bidders.

And the investor doesn't even need that long of a guarantee...he's not investing massive capital in airplanes, just some light overhead and easily disposable labor. 3-5 years should be enough.

Somebody who can do math. As long as the contract value is enough to pay for the labor and overhead required to operate said airplanes, with a profit margin and small buffer for unforeseen risk it's a good investment.

So what if you get fired in five years? You don't owe anybody anything...pocket the proceeds, fire all the employees, and walk away.

Apparently I didn't convey my point clearly or you missed my point

That no one would buy and airline if they didn't have planes to operate (weather they were owned or leased)

And yea I can do math.

I changed the name to reflect the letter you posted. I see nothing about liquidation. That is your speculation, which you are free to do.

"The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period."

Divestiture Definition

They can just "LIQUIDATE" the company if they want. That's also what divestiture means.

Since AMR is trying to keep the planes AFTER divestiture, that means closure or liquidation.

Of course all of this is potential and no one will know after it's all over, but the letter from the union infers liquidation.

Prior to the letter, we were under the impression we would be spun off to become an independent airline. But we need airplanes for that...

Well that's what the entire thread was supposed to be about. Speculation and discussion of liquidation.

Liquidation is usually what it means to divest a company and keep it's primary assets.

I would have appreciated if you would have asked me before you changed my thread.

I would very much appreciate it if you changed the name back to the original name. That's what this thread was for.

Thank you.

Not correct. AMR could keep the airframes and sell the Eagle certificate, leasing the aircraft back to the company that purchased Eagle. Lease-backs seem to be the flavor of the month these days between Majors/Regionals.

The new title should be the most accurate.

Thank you Tony. That title works too.

That could be one course of action. All of this is speculation so I should have thrown the word "Potential" in front of liquidation.

The other thing that's notable is that the union used the term "continuing" in front of legal actions they are taking. This infers that the MEC has known about the issue of AMR keeping the aircraft since they are continuing legal action.

This letter was the first we heard about this "continuing legal effort."

Tell you what, for me to take any concessions now would be silly and wouldn't change their path either way! NO PBS !!

PBS would actually be a good argument against liquidation. The company would not care about PBS if they were going to liquidate us.

Mate, if you do math as well as you punctuate and spell.... ;)

Anyway, when TSA bought Compass they didn't buy airplanes, they bought contracts and leases. It may sound like semantics, but nobody actually buys airplanes when they buy another airline, they simply purchase the rights to certain agreements. A potential investor might negotiate potential lease deals with the leasing companies before they even approached the major with whom you'd be contracting, so that they'd have a cost structure already in mind should the major want to play ball.

What you're getting with Eagle is a turn key operation, should you happen to find yourself with 200+ ERJs on your hands.

ding. ding. ding. we have a winner. it will be just that simply.

Unless things have changed in the last 6 years, people are reading way too much into AMR keeping the airplanes.

When I was at Eagle, the majority of the a/c were owned by an AMR leasing company and leased to AE. Peter Bowler was president of said leasing company. So if it is still that way, AMR will continue to own the a/c and lease them to the new owners of AE if sold.

Didn't CAL divest Expressjetpilots, or was that something different?

Deleted.....

CAL did but XJT kept the aircraft.

Get your PIC and get out asap.... :D:D

American Eagle exists in large part as a wholly owned airline as a vehicle by which AMR may shuffle money around to/from AA and AE as needed. If Eagle were to be divested with just a CPA there would be no way to continue shuffling money around... it woudl all be one way only, from AA to Eagle. By moving the equipment to AA/AMR and leasing it back to Eagle, they will be able to keep their money shuffle alive with perpetual renegotiation of leases...

The Eagle ATR's were sold well over a year and a half ago to an outside company for leaseback...

No real news here.

A divested Eagle would simply be a flight crew staffing company. Airplanes retained by AMR and put up for bid as the flying comes up for bid. Not a big deal really, as owning the airplanes has its own set of problems (see XJT when CAL cut a huge portion of their flying).

Guys, this is exactly what happened to us at XJT back in '02. After the spinoff, CAL still held the leases on all the ERJ's, and they still do to this very day. My concern for you is that after you are divested, AMR may try to do the same thing that CAL did to us. They may say you guys are too expensive, threaten to pull the aircraft that they hold the leases to, put flying out for bid, and jam a cut rate CPA down your throat that will leave Eagle running on a shoestring budget. It sucks, and I truly hope you guys can avoid that path.

thats what they are trying before the divestitue.

Yes, CAL wrote a cost plus CPA with many restrictions and then XJT was IPOd. XJT sub-leased the aircraft from CAL.

CAL leases those aircraft and sub-leases them to XJT. The CPA governs who operates those aircraft.

AMR isn't going to spin off Eagle to AMR shareholders and then put Eagle in a position to be liquidated. The shareholders would be livid as their stock of little value would become zero.

AMR is doing the same thing CAL did to XJet. By controlling the leases on the aircraft they can continue to squeeze money out of Eagle and use the threat of whipsaw against the company by threatening to give the planes to someone else. Although the ERJs and ATRs don't have much value (CRJs are a different story), they are still worth more than 0 and AMR will get every last penny out of them that they can.

The divestiture, if it happens, is going to be very vanilla. Probably a 3-5 year CPA with the current fleet or close to the current fleet size followed by the flying being put up to bid. Then Eagle will have to compete with RAH inc., SkyWest Inc., TSH, etc. for remaining 50 seat feed that AMR decides to rebid. It'll probably be less than what they have today.

Like every regional, Eagle will have to compete for a greatly reduced demand for 50 seater with other carriers desperate to keep aircraft flying. It is going to be an absolute blood bath for the regionals and mainline management's wet dream. These aircraft will be flown close to cost because all these regional carriers saw what happened to Mesa when they couldn't keep aircraft flying. They will of course come to us and demand pay cuts but in the end it won't make much of a difference because the economics of the 50 seat jet have been destroyed by the high cost of oil. There are simply too few routes that these things now work on and way too many aircraft in the market. The bubble is ready to pop.

Just pray to god that our mainline brothers and sisters don't relax scope anymore or don't have it taken away anymore then that way we'll all have a shot at having a career.

Got it, but wasn't that part of the big problem leading to the branded flying: that XJT was on the hook (perhaps not owned but under lease) for a bunch of airplanes for a period of time but with CAL flying pulled from them?

I would hope Eagle would not sign leases for them for a period of time exceeding any CPA they're associated with.

AE mgt will sign any CPA AA mgt tell them. Why because AE senior mgt are AA mgt and work, get paid, retirement from and bonuses come from AA for the senior AE mgt. So I do expect a bs CPA if divested. The divestiture is a squeeze also on the ALPA MEC at AE. Being the fact that they (MEC) have shown that they will sell there sole for almost nothing in return. I expect the mec to try some more maneuvering to get PBS and some enhanced efficiencies ( pay cuts and more watered down contract) to make mgt happy.