Sabre sells IT business to EDS

Sabre Holdings Corp. last week announced a US$3 billion deal to sell its airline IT outsourcing business and its internal technology assets to Electronic Data Systems Corp. As part of the deal, Sabre outsourcing customer American Airlines Inc. said it will pull some of its application development activities back in-house.

American plans to absorb approximately 250 Sabre employees, many of whom worked for American when Sabre was owned by the airline's parent company, AMR Corp. American said the added staff would develop applications related to revenue management and flight capacity planning.

In 1976, American formed Sabre from its IT backbone, and it spun it off as a separate company last March. Since then, Sabre has been responsible for the IT work surrounding American's scheduling and pricing operations.

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

Ford said the IT move would double American's operations research department, responsible for the formulas, algorithms and mechanics involved in the airline's in-house applications development.

He added that IT would now play a much greater role in determining American's future.

"We sort of outsourced our thinking, along with outsourcing Sabre," he said. "Our goal now is to build a world-class tech organization in-house."

The sale will also include Sabre's existing outsourcing and data center contracts with American Airlines, US Airways Group, and other airlines.

That deal would put EDS in charge of key check-in and passenger management systems that are used by dozens of airlines in the US and other countries.

About 4,200 employees at Sabre will transfer to EDS as part of the agreement, which is expected to be completed by midyear.

The deal includes the 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.

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 a massive transaction processing facility.

Sabre's desktop and midrange computer-management systems will be included in the deal as well.

"Our goal is to be the key IT provider inside the airline industry," said Jim Dullum, president of EDS's global transportation industry group.

EDS previously provided data center and IT support for Continental Airlines and AeroMexico.

After the sale, Sabre said it plans to focus on its travel marketing and ticket distribution business and related operations, including an application software suite and a reservation hosting unit that's separate from the IT outsourcing unit.

Sabre will also retain majority ownership of online travel agency Travelocity.com, although EDS will host the Travelocity Web site and provide IT services to the Fort Worth-based e-commerce company.

Henry Harteveldt, a senior analyst at Forrester Research, praised Sabre for what he termed "a big, gutsy, bold move" in giving up the data center that once formed the core of its business.

"They obviously don't view anything as a sacred cow," Harteveldt said. "They want to develop the solutions which send the information though the data centers, but they obviously view the data center maintenance as low-margin stuff."

Steve Clampett, the senior vice president of software solutions at Sabre, said his company will still rely heavily on EDS.

"Part of this agreement was finding a partner with whom we can work closely in the future," he said.

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