AMR investor urges board spin-off

UNREALIZED VALUE

FL Group's Smarason said AMR's structure obscured the profitability of the company's individual business units, some of which are more stable and have better growth prospects than an airline.

Compounding the problem, AMR does not disclose detailed financial information on its business units, he added.

To realize its potential, FL Group urged AMR to spin off business units to create value for shareholders.

"We believe the AAdvantage Frequent Flyer program is the AMR business unit with the most value upside, although other AMR units could also unlock value," Smarason said in the letter to the board.

FL Group cited the successful spinoff of Air Canada's (ACa.TO: Quote, Profile, Research) loyalty program by parent ACE (ACEa.TO: Quote, Profile, Research). Aeroplan Income Fund (AER_u.TO: Quote, Profile, Research), which holds a minority stake in the program, posted a 55 percent rise in second-quarter profit on higher billings.

At Wednesday's close, Aeroplan shares had risen 50 percent in the last 12 months, while AMR had fallen 13 percent.

Loyalty programs generate revenue by selling loyalty points, mainly to credit card companies. Those revenues have been rising at a steady rate as credit card companies increasingly look to reward their customers.

"We recognize there are differences between the U.S. and Canadian airline sectors," Smarason said. "Nevertheless, we believe the case for enhanced value is clear and has already been proven."

While FL Group is urging a spinoff, the firm said AMR should keep effective control of the program in the near term to give the company and investors time to get comfortable with the new structure.