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 Outsourcing

April 29, 1991

EDS captures airline contract

Outsourcing deal is largest ever; marks firm's entry to airline services

By Clinton Wilder

DALLAS - Electronic Data Systems Corp. had to settle for half a loaf, but that was enough to be the largest outsourcing deal to date and EDS' long awaited entry into the airline services business.

Last week, EDS announced a $2.1 billion, 10-year contract to provide all information technology services to Continental Airlines and its reservation system, System One. However, the deal falls far short of the original $4 billion pact announced more than one year ago [CW, Feb. 26, 1990], which called for EDS to service now-defunct Eastern Airlines and also own a 50% equity stake in System One.

The latter provision was scrapped after Continental's parent, Continental Airlines Holdings, Inc., filed for bankruptcy protection under Chapter 11, fuel prices soared, and IBM Credit Corp. (ICC) filed a lawsuit against the deal [CW, Nov. 5, 1990]. But analysts said EDS may be better off sticking to the outsourcing services.

"This looks like it has most of the advantages of the earlier deal and few of the disadvantages," said Martin Ressinger at Duff & Phelps Investment Research Co. in Chicago.

One analyst speculated that EDS may still have an interest in other reservation systems such as Amadeus, a European system in which Houston-based Continental holds a stake.

"This gives EDS the best of all possible worlds-access to the System One software and people," said Stephen McClellan, vice president of securities research at Merrill Lynch & Co. in New York.

EDS will hire 1,860 System One information systems professionals to run data centers in Miami, Houston and Los Angeles.

Another factor that prevented EDS from acquiring System One was a lawsuit filed by ICC objecting to the transfer of ICC leases from System One to EDS. The suit was dropped when the acquisition was canceled. An ICC spokesman said the firm was involved in the current deal only as a Continental creditor on file in the bankruptcy proceedings.

EDS will acquire one small piece of System One, the Airline Services Division, for a reported $35 million. The division provides scheduling and ticketing services (but not reservations) to 170 small regional airlines and has annual revenue of about $30 million. This acquisition was part of the original deal.

                  Consulting                  
References                   Practices                         Case
 Outsourcing