FL Group Urges American Airlines to Consider All Options to Enhance Shareholder Value

- Proposes spin-off of the AAdvantage Frequent Flyer program -

Sep 27, 2007, 01:00 ET from FL Group

    REYKJAVIK, Iceland, Sept. 27 /PRNewswire/ -- FL Group, one of American
 Airlines' largest shareholders, wrote to the Board of Directors of AMR
 Corporation (NYSE:   AMR) on Tuesday urging the company to immediately
 consider strategic alternatives that would significantly increase
 shareholder value. These include the separation of American Airlines'
 frequent flyer loyalty program, AAdvantage, the world's oldest and largest
 frequent flyer program, from the main business.
     AMR's share price has fallen almost 50% since January 2007, costing AMR
 shareholders close to $5 billion. While the industry environment remains
 challenging for all airline companies, FL Group believes that opportunities
 remain to unlock shareholder value and that the AMR management team and
 board of directors should actively pursue all such opportunities. Simply
 blaming high fuel costs and investor sentiment is not a sufficient
     AMR's structure as a fully integrated legacy carrier and the lack of
 detailed financial information provided by the company on its various
 business units mean that the profitability of each individual business unit
 is not clearly understood by investors. Based on publicly available
 information, FL Group has performed a conservative analysis of AMR's
 business units and believes there is significant hidden shareholder value
 to be unlocked. In particular, FL Group believes that unbundling AMR's
 AAdvantage ("AAD") Frequent Flyer program could increase shareholder value
 by more than $4 billion.
     FL Group CEO Hannes Smarason commented: "FL Group has significant
 experience in the airline sector and strongly believes that there are
 strategic alternatives which should be considered to increase shareholder
 value. After taking a close look at the company over an extended period of
 time, our suggestions include monetizing assets, such as AAdvantage, that
 can be used to reduce debt or return capital to shareholders. We believe
 that there is no time to lose given the recent developments in the market
     The full text of the letter is attached below.
     About FL Group
     FL Group is an international investment company focusing on two areas
 of investment. The majority of its operations are run through the Private
 Equity and Strategic Investment division which can take stakes in listed
 and private companies as well as lead private equity buy-outs. The Capital
 Markets division is a proprietary trading desk focused on taking short-term
 positions, primarily in equities, bonds and currencies.
     With its head office in Reykjavik and offices in London and Copenhagen,
 FL Group invests in companies worldwide, with a special focus on Europe. FL
 Group is listed on the OMX Nordic Exchange in Reykjavik (OMX: FL). At the
 end of the second quarter 2007, FL Group's total assets amounted to ISK
 319.6 billion (US$ 5.1 billion). Its market capitalization at the end of
 August 2007 was ISK 208 billion (US$ 3.4 billion). More information is
 available on http://www.flgroup.is
     In the airline industry, FL Group has made a series of successful
 investments including the acquisition of Sterling Airlines, Scandinavia's
 largest low-cost airline. Sterling is now a part of Northern Travel
 Holding, a major Scandinavian travel group formed in January 2007 where FL
 Group has a 32% share. FL Group has also built a 23% stake in Finnair, the
 Finnish Flag Carrier. FL Group is the former sole owner of Icelandair, the
 Icelandic Flag Carrier, and a former owner of a 16.9% stake in easyJet, one
 of Europe's largest low-cost airlines.
     Media enquiries:
     FL Group
     Kristjan Kristjansson
     Director Corp. Communications
     Tel: +354 591 4400 / 354 899 9352
     New York
     Michael Buckley / Stan Neve
     Tel: +1 212 333-3810
     Anita Scott / Elena Shalneva
     Tel: +44 20 7404 5959
     The Board of Directors
     AMR Corporation
     4333 Amon Carter Boulevard
     Fort Worth, TX 76155
     Attention:  Gerald J. Arpey
     Chairman, President and CEO AMR Corporation/American Airlines
     Reykjavik, September 25, 2007
     Ladies and Gentlemen,
     As you are undoubtedly aware, FL Group is one of the largest
 shareholders of AMR Corporation, currently holding 8.25% of the company's
 outstanding common shares. FL Group is also a highly experienced player in
 the airline industry, with a strong track record of value creation in the
 sector through its investments in easyJet, Sterling Airlines, Icelandair
 and Finnair. We generally hesitate from approaching the board of directors
 regarding value creation strategies, preferring to speak directly with
 management. However, subsequent to our conversations with members of the
 AMR management team, we are not aware of any specific plans that management
 may have to enhance shareholder value. This, when taken with the company's
 recent disappointing and surprising earnings guidance, has meant that we
 now feel compelled to write to you directly.
     A Time to Act
     AMR's share price has dropped some 50% since January 19th 2007. Given
 the close to $5 billion this has cost AMR shareholders, we believe serious
 consideration of strategic alternatives is long overdue. Instead of blaming
 the company's poor share price performance on external factors such as
 "fuel prices" and "intense competition," we believe that it is now time for
 AMR to act. We therefore urge AMR's management and Board of Directors to
 consider all options to enhance shareholder value and outline a clear path
 forward for value creation.
     The Problem
     AMR's structure as a fully integrated legacy carrier means that the
 profitability of its individual business units is not easily understood by
 investors and analysts. AMR holds different businesses that are less
 cyclical and have more favorable growth prospects than a pure aviation
 play, but its share price remains saddled with a blended valuation multiple
 that fails to capture those growth prospects. The fact that AMR does not
 disclose detailed financial information on its various business units
 results in difficulty capturing individual unit value and likely
 exacerbates the pure play valuation discount.
     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. We strongly urge AMR's management to aggressively
 evaluate strategic alternatives to generate shareholder value.
     The Opportunity
     Significant opportunities for value creation at AMR exist that are both
 practical and actionable. In short, FL Group believes significant value
 potential can be unlocked by unbundling AMR's ancillary business units,
 whose revenues are currently being valued at mainline airline multiples
 instead of multiples that correspond with their particular business lines.
 In our view, the separation of AMR's business units, such as the AAdvantage
 Frequent Flyer program, is potentially more than just a zero-sum game.
 Unbundling can eliminate a valuation discount, especially in complex
 corporate structures such as legacy carriers, and can also lead to greater
 management focus and improved operational performance. In this specific
 case, we believe the AAdvantage Frequent Flyer program is the AMR business
 unit with the most value upside, although other AMR units could also unlock
     The frequent flyer/loyalty industry is attractive due to strong
 profitability, stable cash flow and growth rate potential. AAdvantage's
 size and market position provides an excellent platform for future growth
 and industry leadership. Our analysis suggests a value upside of over $4
 billion from unbundling AAdvantage. Given the limited financial information
 available to us on AAdvantage, the valuation is based on conservative
 assumptions taking into account available performance metrics from other
 frequent flyer programs. In addition, the concept of unbundling has already
 been proven to generate value. One need only examine Aeroplan, the loyalty
 program spun off by Air Canada's parent ACE, to find a successful example.
 Since 2004, Aeroplan has grown rapidly and analysts expect the company to
 grow revenue by almost 100% from 2004 to 2008. We recognize there are
 differences between the U.S. and Canadian airline sectors; nevertheless, we
 believe the case for enhanced value is clear and has already been proven.
 Since its IPO in June 2005, Aeroplan's stock performance has significantly
 outperformed the North American airline sector.
     While we urge AMR to commit to a strategic review to monetize
 AAdvantage's value for shareholders, we happen to believe that AMR should
 keep effective control of AAdvantage in the short-to-medium term and that
 an outright sale is less advantageous at the present time. AAdvantage could
 instead be separately listed with a limited free float to be distributed to
 a mix of original and new shareholders. This type of multi-step spin-off
 would provide operational benefits to AMR and allow the company to
 fine-tune the intra-company relationship. Such a gradual process would also
 have the benefit of allowing AMR to capture the full value of AAdvantage as
 investors become more familiar with a pure "frequent flyer/loyalty" play.
     Regardless of any difference of opinion over these mechanics, we should
 be able to agree that AMR's stock is undervalued and poorly reflects the
 success and growth potential of AAdvantage; and that the Board, management
 and shareholders should look for ways to capture that hidden value.
     A Call to Action
     Any realistic assessment of a spin-off, as described above, must
 acknowledge that there are risks involved. But leadership is about
 evaluating those risks and making prudent choices. A separated AAdvantage
 will impact AMR's performance; however, we believe that the ongoing
 partnership could be properly managed and that the net effect would
 substantially increase shareholder value. As stated above our conservative
 analysis indicates that the unbundling of AAdvantage could lead to value
 creation of more than $4 billion.
     We strongly encourage you to look at the opportunity to unlock
 shareholder value by spinning-off AAdvantage as outlined above. At an
 absolute minimum, better disclosure of AAdvantage's financial results and a
 robust review of strategic alternatives will help convince shareholders
 that you view value creation as the key objective. We are more than
 prepared to assist AMR in any way to achieve that end.
     We look forward to your prompt response demonstrating a serious evaluation
 of these matters.
     Yours sincerely,
     Hannes Smarason
     FL Group