Delta lures Japan Airlines with $1b package

Delta Air Lines Inc and alliance partners readied a $1 billion package for Japan Airlines Corp to lure the carrier from a grouping with American Airlines.

Delta and other SkyTeam members may buy $500 million in Japan Air shares or convertible securities, according to a document handed to reporters at a Delta event in Tokyo yesterday. There would also be as much as $300 million of guarantees to cover any drop in sales caused by JAL joining SkyTeam from American's Oneworld.

Delta, the world's biggest carrier, has started to woo JAL ahead of a US-Japanese "open skies" agreement that will liberalize travel between the two nations. American may team with private equity firm TPG to buy a $300 million stake in JAL, according to a person familiar with the situation, as the Tokyo-based carrier seeks new investment and government support following three losses in the past four years.

"Delta has the bigger network, which may appeal to JAL, but American may offer more long-term potential because of its more global reach," said Ryota Himeno, an analyst at Mitsubishi UFJ Securities Co. "Still, that amount of money won't be enough to solve JAL's problems on its own."

The SkyTeam proposal would also include $200 million in asset-backed financing and $20 million to cover JAL's costs for switching alliances. Air France-KLM Group, China Southern Airlines Co and Korean Air Lines Co are also part of the SkyTeam group.

JAL spokeswoman Sze Hunn Yap declined to comment on the offer.

The carrier pared earlier declines, trading down 4.9 percent at 97 yen at 2:44 p.m. in Tokyo after earlier dropping as much as 7.8 percent.

Delta, which doesn't have an alliance partner in Japan, wants access to JAL's network in the world's second-largest economy, and in China, Asia's biggest air-traffic market.

Oneworld, SkyTeam and Star Alliance, the three main global airline groups, help carriers cut operating costs and allow them to expand sales networks without the difficulties or expense of a merger. JAL gets as much as $500 million a year in additional revenue from its Oneworld partnerships.

Staying in Oneworld would "make more sense," and it would be "easy" to seek antitrust immunity to deepen ties with American, JAL President Haruka Nishimatsu said last week. The airlines established a marketing alliance in 1999, and JAL joined Oneworld two years ago.

JAL last week scrapped its full-year earnings forecast after posting a first-half loss of 131 billion yen ($1.5 billion). The carrier is seeking loans of 125 billion yen to maintain operations and has applied to negotiate out-of-court agreements with creditors to temporarily freeze debt payments.

Every Oneworld carrier is crafting incentives to help keep JAL in the alliance, John McCulloch, the group's managing partner, said earlier this month. American, the only carrier proposing a direct investment, has said that it may team with TPG to buy a stake. Both companies are based in Fort Worth, Texas.

Source:China Daily