AMR investor FL Group urges board to enact changes

By Chris Reiter and Jeffrey Goldfarb

NEW YORK/LONDON (Reuters) - FL Group FL.IC, one of the largest shareholders in AMR Corp (AMR.N), has urged the board of the American Airlines parent to consider strategic alternatives, including spinning off its frequent-flyer program, to boost its flagging share price.

FL Group, an Icelandic private equity firm that currently owns 9.1 percent of AMR, said in a letter to the board that changes at the company were long overdue, considering the 50 percent drop in the share price since January.

"There is no time to lose, given the recent developments in the marketplace," FL Group Chief Executive Hannes Smarason said in a press release.

In an interview with Reuters, Smarason said he would rally shareholder support for the FL Group plan if AMR did not respond in a timely manner, but he stopped short of issuing a deadline.

If AMR balks, "then we go to the next level," he said. "The next level is to engage other like-minded people on the issue ... to increase the heat in the kitchen."

"In terms of getting shareholders interested in this, I don't think that's going to be an issue," said Smarason. He said he has already received positive feedback on the letter from other shareholders.

In an e-mail statement, AMR said it values input from shareholders and regularly considers "the best use of our strategic assets and the impact that those decisions might have in the long run for our shareholders."

The company said it does not comment on "what we may or may not do in the future."

BULKY STRUCTURE

AMR has a more diverse structure than other U.S. airlines. It owns American Eagle, which flies regional routes for American -- a service that most airlines have contracted out to other carriers. It also owns investment advisory firm American Beacon Advisors.

FL Group, which says it has owned AMR shares for about a year, says the AAdvantage frequent-flyer program -- the oldest and largest loyalty program in the industry -- may be the jewel in the crown.

The Reykjavik-based firm, which owns Scandinavian discount airline Sterling Airlines and formerly owned Iceland's flagship carrier, Icelandair, said spinning off AAdvantage could increase shareholder value by more than $4 billion.

AMR's market capitalization is $5.4 billion.

The idea of spinning off assets isn't new but has gained momentum recently.

"Investors have been looking at that, especially as AMR's stock languishes," Calyon Securities analyst Ray Neidl said.