AMR Corp. plans sale of Sky Chefs; final negotiations under way

Nation's Restaurant News, Jan 20, 1986 by Peter Romeo, air lines Food service

AMR Corp. plans sale of Sky Chefs

ARLINGTON, Tex. -- AMR Corp. is in final negotiations for the sale of its Sky Chefs inflight feeding operations to Onex Capital Corp., a Toronto-based investment concern, according to analysts and a source close to the deals.

The analysts estimated the price at $100 million to $150 million.

Sky Chefs spokesman Joseph Camperson declined to comment on the reports. But other sources said AMR informed Sky Chefs' 7,500 employees late last year that it was considering several offers for the contract feeder.

In an address to security analysts last October, AMR chairman Robert Crandall also admitted the possibility of a sale. Crandall said at the time that Sky Chefs, the nation's third-largest inflight feeder, would benefit a nonairline company more than it would AMR, which is also the parent of American Airlines.

"It makes a hell of a lot of sense," Robert Joedicke, an airline analyst with Shearson Lehman Brothers in New York, said of the pending sale.

He explained that free-standing companies specializing in inflight feeding often provide better food than an airline's own catering division.

In addition, "airline labor costs tend to be higher than for a [food-service] contractor," Joedicke said. "So it's a matter of getting something better for less money. It's part of a tendency in the [airlines] industry right now to contract out."

Sky Chefs' 29 kitchens provide inflight meals to about 50 airlines. In addition, the concern operates about 260 concessions in airport terminals and along the New York and Illinois state highways.

Sky Chefs' 1985 sales-per-outlet averaged $5.5 million, the highest among all U.S. contract feeders, according to Nation's Restaurant News' Top 100 ranking of food-service concerns.

The listing projected Sky Chefs' 1985 revenues at $365.3 million, making it the nation's seventh-largest contract feeder and the third-largest inflight feeder, behind Marriott and Dobbs House.

But the concern has posted lower sale increases and profits in recent years. Revenues rose by 9.9% last year, compared with a 12.9% increase during 1984, while profits decreased in 1984 to $13.6 million, down 41% from the previous year's.

The acquisition of Sky Chefs would marks Onex Capital's entry into the food-service industry. The closely held company specializes in leveraged buyouts financed through pension fund loans.