AMR Buyout Seen as Unlikely

Numerous hurdles would await British Air if it launched a bid.
Publish date:

Updated from 6:56 a.m. EST

Analysts expressed skepticism Friday about a report that



, the parent of American Airlines, could be a takeover target.

"We doubt such a bid will surface, and if it does, we doubt it would succeed," said Prudential analyst Bob McAdoo, in a research note.

A report in

Business Week

magazine said the world's biggest airline is being eyed by a group that includes

Goldman Sachs

(GS) - Get Report


British Airways

(BAB) - Get Report


The report was part of Gene Marcial's "Inside Wall Street" column, a feature well known for speculating on mergers. It cited people who had knowledge of the situation and said the bid might be between $9.8 billion and $11.1 billion, or $46 to $52 a share.

Shares of AMR traded up 1.9% to $38.79, but the stock had initially been higher on the takeout speculation.

Any deal would have to conform to U.S. laws that prevent noncitizens from holding more than 49% of a U.S. airline's total equity. Regulations also stipulate that U.S. citizens must hold at least 75% of the voting stock.

"We tend to doubt if anything will happen with this proposal, at least at this time, primarily because of potential regulatory hurdles," wrote Ray Neidl of Calyon Securities in a report. "The British Air involvement could add a further complication because of antitrust and foreign ownership considerations."

American and British Airways have long been partners. They are founding members of the Oneworld alliance and have code-sharing agreements on various flights, though they're not allowed to code-share on trans-Atlantic routes and have failed in periodic attempts to secure antitrust immunity on those routes.

Additionally, American is the largest U.S. carrier at London's Heathrow Airport, which is British Airways' principal hub. An American spokesman declined to comment for this story.

In addition to the regulatory barriers, analysts say additional hurdles would be associated with a leveraged buyout. Neidl noted that several leveraged acquisitions of airlines were tried in the late 1980s and early 1990s but failed because public equity, "a major source of capital, was cut off."

McAdoo said American is a particularly unlikely LBO candidate because of its high debt load, a result of being the only legacy carrier never to have sought bankruptcy protection, and large capital requirements related to the need to replace more than 300 aging MD80 aircraft.

A more likely candidate might be



. It has "a cleaner balance sheet and a management team that seems more ready to sell the company," although a United deal would also be difficult, McAdoo said.

United shares were up 0.7%.



quoted sources as saying that British Airways and Goldman Sachs have no current plans to bid for AMR.