Big AMR investor suggests spinoff of American Airlines frequent-flier program to boost shares
AP
Posted: 2007-09-27 11:54:07
DALLAS (AP) - A major shareholder in AMR Corp. wants the owner of American Airlines to boost its stock price by spinning off the frequent-flier program and other businesses.
FL Group, an investment fund based in Iceland, said the AAdvantage frequent-flier program is worth $6 billion, and that a sale could produce a net gain of $4 billion for AMR.
The stock market values all of AMR at about $5.5 billion.
The fund's chief executive, Hannes Smarason, wrote to AMR directors on Tuesday to suggest the spinoff. FL Group said it has an 8.25 percent stake in AMR, owner of the biggest U.S. air carrier.
AMR said it valued input from shareholders but doesn't comment on discussions with shareholders or future plans.
Its shares rose 15 cents to $21.92 on morning trading Thursday.
American and other airlines have struggled with higher fuel prices and fear of an economic slowdown that might reduce travel. Cabins were nearly full this summer, but fare-discounting limited the profitability of airlines.
The price of AMR stock has fallen nearly by half since mid-January, wiping out billions in shareholder equity.
On Friday, Fort Worth-based AMR said third-quarter revenue would grow but not as fast as analysts had expected. That led to a 14.3 percent drop in the shares on Monday, the worst single-day percentage decline in more than four years, leaving AMR's stock 49 percent below its mid-January peak.
In his letter, Smarason said FL Group contacted AMR directors after getting no indication that the airline company's management has a plan to boost the stock price. He added that AMR's recent comments about futures were "disappointing and surprising."
Smarason said investors have trouble putting a value on AMR's individual business units. He said some of those units are less cyclical than a pure airline, but the AMR share price doesn't reflect the true value of the company.
The investor said AMR's refusal to disclose detailed financial information about its separate units added to this confusion.
"AMR is an industry leader in terms of size and scale, but given the factors outlined above, and the difficult industry environment, we believe the company will find it very challenging to outperform its competitors over the long term," Smarason wrote. "We strongly urge AMR's management to aggressively evaluate strategic alternatives to generate shareholder value."
Smarason said AAdvantage enjoys large size, stable cash flow and growth prospects. He pointed to the successful spinoff of Air Canada's frequent-flier program, Aeroplan, which he said has outperformed airline stocks since its 2005 spinoff.
A spokesman for AMR, said company management and directors "regularly give careful consideration to the best use of our strategic assets and the impact that those decisions might have in the long run for our shareholders."
Most of FL Group's investments are in Europe, including the acquisition of Denmark's Sterling Airlines A/S and a 23 percent stake in Finnair. The fund formerly owned Icelandair and held a large stake in easyJet.
AP
Posted: 2007-09-27 11:54:07
DALLAS (AP) - A major shareholder in AMR Corp. wants the owner of American Airlines to boost its stock price by spinning off the frequent-flier program and other businesses.
FL Group, an investment fund based in Iceland, said the AAdvantage frequent-flier program is worth $6 billion, and that a sale could produce a net gain of $4 billion for AMR.
The stock market values all of AMR at about $5.5 billion.
The fund's chief executive, Hannes Smarason, wrote to AMR directors on Tuesday to suggest the spinoff. FL Group said it has an 8.25 percent stake in AMR, owner of the biggest U.S. air carrier.
AMR said it valued input from shareholders but doesn't comment on discussions with shareholders or future plans.
Its shares rose 15 cents to $21.92 on morning trading Thursday.
American and other airlines have struggled with higher fuel prices and fear of an economic slowdown that might reduce travel. Cabins were nearly full this summer, but fare-discounting limited the profitability of airlines.
The price of AMR stock has fallen nearly by half since mid-January, wiping out billions in shareholder equity.
On Friday, Fort Worth-based AMR said third-quarter revenue would grow but not as fast as analysts had expected. That led to a 14.3 percent drop in the shares on Monday, the worst single-day percentage decline in more than four years, leaving AMR's stock 49 percent below its mid-January peak.
In his letter, Smarason said FL Group contacted AMR directors after getting no indication that the airline company's management has a plan to boost the stock price. He added that AMR's recent comments about futures were "disappointing and surprising."
Smarason said investors have trouble putting a value on AMR's individual business units. He said some of those units are less cyclical than a pure airline, but the AMR share price doesn't reflect the true value of the company.
The investor said AMR's refusal to disclose detailed financial information about its separate units added to this confusion.
"AMR is an industry leader in terms of size and scale, but given the factors outlined above, and the difficult industry environment, we believe the company will find it very challenging to outperform its competitors over the long term," Smarason wrote. "We strongly urge AMR's management to aggressively evaluate strategic alternatives to generate shareholder value."
Smarason said AAdvantage enjoys large size, stable cash flow and growth prospects. He pointed to the successful spinoff of Air Canada's frequent-flier program, Aeroplan, which he said has outperformed airline stocks since its 2005 spinoff.
A spokesman for AMR, said company management and directors "regularly give careful consideration to the best use of our strategic assets and the impact that those decisions might have in the long run for our shareholders."
Most of FL Group's investments are in Europe, including the acquisition of Denmark's Sterling Airlines A/S and a 23 percent stake in Finnair. The fund formerly owned Icelandair and held a large stake in easyJet.
