American, Delta and United may follow Air Canada's lead in selling off subsidiaries

US legacy carriers are focusing on divestitures and spin-offs, rather than mergers and acquisitions, as the next stage of consolidation. Inspired by the progress of Air Canada's sale of many of its holdings, the biggest US carriers are reviewing the benefits of breaking up as deal-making continues at a strong pace, despite a slowing economy.

American Airlines parent AMR is considering a sale of its frequent-flyer unit, a step urged by a major shareholder. At United parent UAL, chief executive Glenn Tilton has made clear that he has subsidiaries for sale. And at Delta Air Lines, chief executive Richard Anderson says the carrier is close to a decision on selling its troubled Comair regional unit after years of internal discussion.

"For me to affect consolidation, I need to have somebody agree with me"

Glenn Tilton

Chief executive, UAL Corp

United's Tilton suggests that divestiture rather than merger is the likely next step. He has been urging a merger for the past year or two but "for me to be able to affect consolidation, I need to have somebody agree with me". Tilton said in a message to United employees that his strategic plan "includes unlocking the value of business units such as United Services and Mileage Plus". UAL estimates the Mileage Plus programme could be worth $5.5 billion, but Bear Sterns predicted in August it could fetch $7.5 billion.

Although Anderson of Delta gave the requisite acknowledgment of "the obvious benefits" of a possible merger, Delta would focus on a decision on a sale of Comair "in the next quarter or so". The carrier sold its equally troubled Atlantic Southeast ­Airlines unit in 2005 to SkyWest at a low price of $425 million.

Anderson says Delta will also begin reporting separate financial performance for its maintenance division, Delta Global Services subsidiary and other units: "We're going to start breaking them out and really running them as stand-alone businesses."

At AMR, executives were more cautious, with chief financial officer Tom Horton telling analysts that "we are carefully considering the pros and cons" of spin-offs but giving no timetable. Horton says AMR would consider selling a money-management unit, American Beacon Advisors, as well as its Eagle regional unit. Horton adds that a sale of Eagle could let American "focus on its mainline business and ensure continued access to cost competitive regional feed over time".

Like Delta, AMR would begin more detailed reporting on its various units, including AAdvantage and its maintenance, repair and overhaul unit. But any standalone maintenance business would have to compete with the former Air Canada Technical Services unit, the sale of which was consummated in mid-October.

 




Source: Airline Business

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