Sabre to sell off IT, outsourcing operations to EDS

Sabre Holdings Corp. today announced a $3 billion deal to sell its airline IT outsourcing business and its internal technology assets to Electronic Data Systems Corp. -- a move that's prompting Sabre's outsourcing customer American Airlines Inc. to pull some of its application development activities back in-house.

About 4,200 employees at Fort Worth, Texas-based Sabre will transfer to EDS as part of the agreement, which is expected to be completed by midyear. The deal includes a sale of Sabre's outsourcing business and IT assets, valued at $778 million, plus a 10-year, $2.2 billion contract for EDS to manage Sabre's IT systems.

The two companies said the sale will also include Sabre's existing outsourcing contracts with American Airlines, US Airways Group Inc. and other airlines. That would put Plano, Texas-based EDS in charge of key check-in and passenger management systems that are used by dozens of airlines in the U.S. and other countries.

In a separate announcement, American Airlines said its select technology management functions provided by Sabre are expected to be transferred to EDS after the deal closes. Included are American's data center operations, network services and some application development functions.

But American, also based in Fort Worth, said development of key applications related to revenue management and flight capacity planning will now be done internally. The airline added that it expects to absorb about 250 Sabre employees, many of whom worked for American when Sabre was owned by AMR Corp.

Monte Ford, American's CIO, said in an interview today that executives at the airline had decided the application development work being brought back in-house was too important to be done on an outsourced basis.

"We just wholesale outsourced ... IT, and we weren't necessarily thinking about the strategic nature of that part of the business," Ford said, referring to revenue management and capacity planning. "This is really the heart of what we do, and we decided [it] was something we were going to bring back in."

Sabre's outsourcing business generated about $600 million in revenue last year. EDS will also acquire all of Sabre's data centers and data management assets, including the latter company's massive transaction processing facility in Tulsa, Okla. Sabre's desktop and midrange computer management systems are scheduled to be included in the deal as well.

After the selloff, Sabre will focus on its flagship travel marketing and ticket distribution business along with related operations, including an application software suite and a reservation hosting unit that's separate from the IT outsourcing one. Sabre will also retain majority ownership of online travel agency Travelocity.com Inc., although EDS will host the Travelocity Web site and provide IT services to the e-commerce company.

William Hannigan, Sabre's chairman, president and CEO, said in a statement that he expects the moves announced today to result in "faster revenue and earnings growth" for the company. The money from the sale and the savings expected from the outsourcing deal should be "slightly" beneficial to Sabre's earnings this year, the company said.

As part of the 10-year outsourcing deal, EDS is scheduled to handle data center management, application hosting, data assurance, network management and selected application development functions for Sabre.

The two companies said they also plan to jointly market Sabre's airline software products along with EDS' IT management and consulting capabilities. As part of that arrangement, EDS will give Sabre about $20 million in software development funding over the next two years, primarily for use in adapting Sabre's applications to work in hosted setups.

In addition, EDS said it has agreed to move all of its own travel bookings to the Sabre reservation system. It also plans to implement the GetThere online corporate travel booking system, which Sabre acquired last year in a $757 million deal (see story).

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