AMR To Spin Off Sabre - InformationWeek

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AMR To Spin Off Sabre

The parent company of American Airlines said today it plans to spin off Sabre Inc., an IT service and Internet travel agency company, in a move that executives say will give Sabre a better shot at winning IT outsourcing business from competing carriers.

AMR Corp. owns 83% of Sabre, and it plans to distribute that to AMR shareholders by early next year. At the same time, Sabre will pay a one-time $5.20 per-share dividend that will return $560 million to AMR. The deal awaits shareholder approval and an Internal Revenue Service ruling that the transaction will be treated as tax free.

Sabre runs the world's largest computer reservation system, manages IT systems for airlines, and also owns the Internet travel service Travelocity.com. Donald Carty, AMR's CEO and chairman, says Sabre faced conflicts in the market, namely large carriers wary of paying a rival for IT services, and American would rather sell tickets directly online than through a third-party Internet agent.

More than 80% of the airline industry's IT services remain in house, but many carriers are looking to outsource more, Carty says. The spinoff will give Sabre a better shot at that market. "It's more clear that success for Sabre won't mean enrichment for American, and that is very important to some larger carriers," he says.

American has extended contracts through 2008 for Sabre to run its reservation and scheduling systems and to manage midrange computer systems through 2002. It will move contracts that are on a cost-plus basis to market pricing. And Sabre will be free to sell software dealing with scheduling, yield management, and pricing that AMR had treated as proprietary.

Sabre also recently announced a deal to merge Travelocity.com with the online travel company Preview Travel. Sabre shareholders will own 70% of the combined company.

Sabre does not expect to lay off any employees after the spinoff.

Sabre also appointed William J. Hannigan as CEO. Hannigan, 40, is former president of SBC Global Markets, managing the telecommunication company's largest multinational customers. Before that, he spent 13 years in engineering at Sprint Corp.

Wall Street was receptive to the spinoff news, as AMR's stock price gained 4-17/32 to 68-3/4 in late-afternoon trading. Sabre's stock had moved up 2-9/16 to 54-7/16.

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