Rivals Jostle For JAL Stake; Asia Access Prized

September 15, 2009

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Japan Airlines is likely to opt for a tie-up with Delta Air Lines or American Airlines, among rivals seeking to invest in the loss-making carrier, if Japan and the United States can reach an "open skies" agreement.

The US airlines, and others, are chasing a stake in Asia's biggest carrier by revenue to help them grow in China and get access to JAL's other Asian routes via code-sharing agreements.

One source, not authorized to discuss the talks publicly, said the carriers were each discussing investing USD$200 million - USD300 million in JAL for a minority stake and a code-sharing deal.

Asked if JAL would choose either Delta or American as a partner, CEO Haruka Nishimatsu told reporters on Tuesday: "Yes, I think so, if an open skies agreement looks likely."

Such a deal would allow closer cooperation on flight scheduling and profit-sharing between US and Japanese airlines.

Air France-KLM is also in talks to invest in JAL, said the source who was familiar with the matter. Air France-KLM said it had no comment.

Investing in JAL would bring access to Haneda, the world's third-busiest airport by passenger numbers. Both Haneda and Tokyo's Narita airport are expanding, adding international flights and airline slots.

The decision by JAL, which is undergoing a state-supervised restructuring after years of losses, could reshape the alliances that dominate the global airline industry. The company said it hoped to wrap up the capital tie-up talks by mid-October.


If JAL opts for investment from Delta or Air France-KLM, it would be defecting from the oneworld alliance, a move analysts say would deal a huge blow to a group that includes British Airways, Cathay Pacific and American.

Oneworld would lose JAL's more than 400 slots a week at Narita, twice those of Japan's No.2 carrier All Nippon Airways (ANA), as well as JAL's growing business in China.

JAL flies to nine cities in mainland China using its own fleet, three cities in South Korea, two in Taiwan, as well as to Manila, Singapore and Bangkok.

ANA is in the Star Alliance, with Air China, Singapore Airlines and others.

"Losing JAL would mean oneworld suddenly has to rely more on American Airlines' few slots in and out of Narita," said Nomura analyst Makoto Murayama. "American in particular would be harmed, and is likely to fight that at all costs."

American Airlines, which is seeking US approval by next month to form a transatlantic alliance with British Airways and Spain's Iberia, is the No.4 international carrier at Narita, with about 70 slots a week. Northwest Airlines, acquired by Delta last year, is the leading foreign airline at Narita.

Analysts said JAL would have to weigh the advantage of teaming up with Delta, the world's biggest airline, against the significant cost of leaving oneworld.

"If you just look at what the companies can offer, then Delta would make more sense as an ally because it has more services between Japan and North America," Credit Suisse analyst Osuke Itazaki said, adding that a tie-up with Air France-KLM would not expand JAL's network by much.

Delta and Air France-KLM are members of SkyTeam, with Korean Air and Russia's Aeroflot. JAL, which joined oneworld in 2007, has a separate flight incentive partnership with Air France-KLM.


JAL prefers American Airlines because of the oneworld alliance, the source said, but the Japanese government prefers the financially healthier Delta or Air France-KLM.

JAL lost about USD$1 billion last quarter and is under growing pressure to raise money and cut costs after securing a JPY100 billion yen (USD$1.1 billion) government-backed loan.

The airline has forecast a net loss of JPY63 billion (USD$693 million) for the year to end-March.

As of end-March JAL had total liabilities of JPY1.44 trillion, with the Development Bank of Japan its biggest long-term lender.

As it looks to cut operating costs by 30 percent, CEO Nishimatsu said JAL faced its "largest-ever downsizing", with plans to cut 6,800 jobs, or 13 percent of its total staffing by 2011.

Nishimatsu was talking briefly to reporters after meeting an independent panel reviewing JAL's turnaround.

The carrier will also cut its overseas routes to below half its total flights, Transport Ministry official Yasuhiro Shinohara told reporters.

Kyodo news agency said Korean Air was also in talks with JAL.