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Delta, American offer aid to JAL

Finances at Japan Airlines have been battered by a drop in passenger traffic because of the global economic crisis. Huge pension obligations, an aging fleet, and dozens of unprofitable routes have also weighed heavily on JAL’s bottom line. Finances at Japan Airlines have been battered by a drop in passenger traffic because of the global economic crisis. Huge pension obligations, an aging fleet, and dozens of unprofitable routes have also weighed heavily on JAL’s bottom line. (Yoshikazu Tsuno/ AFP/ Getty Images)
International Herald Tribune / November 19, 2009

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TOKYO - Delta Air Lines and its alliance partners offered $1 billion in aid to Japan Airlines yesterday, a proposal American Airlines quickly said it would top as the world’s biggest air carriers escalated a war for influence over the ailing Japanese company.

Though saddled with debt, Japan Airlines is attractive to both American and Delta because of its strong place in the tricky Japanese market and in the rest of Asia. US airlines have also been looking to shore up their global alliances, both as a growth strategy and as a means of self-defense after mergers in the industry.

Delta and American, however, are also engaged in a delicate balancing act. Too aggressive an overture toward JAL, they fear, could give the Japanese government reason to try to rescue its once-proud flagship carrier without foreign assistance.

At a news conference in Tokyo yesterday, the president of Delta, Edward Bastian, said the carrier and other members of the SkyTeam alliance were ready to offer JAL an aid package worth $1 billion if it would defect from its rival, American Airlines’ OneWorld alliance.

“It is clear that SkyTeam is by far the strongest partner for Japan Airlines,’’ Bastian said. The offer includes $500 million in capital from SkyTeam members, $300 million in guarantees on any revenue loss from the switch, and $200 million in asset-backed financing, according to Delta.

Bastian made his remarks after JAL’s president, Haruka Nishimatsu, said last week that it would be easier for the debt-ridden company to remain within the OneWorld alliance.

Sze Hunn Yap, a Japan Airlines spokesman, told the Associated Press the company was aware of Delta’s offer but could not comment.

In return for the aid package, the winning airline would have Japan Airlines as a member of its alliance and would have a code-sharing agreement with the airline.

The defection of Japan Airlines to SkyTeam would give that alliance a considerable edge over OneWorld in the number of passengers and daily flights.

Figures from May show SkyTeam’s 11 members carried 384 million passengers annually, compared with the 330 million by OneWorld, including 53 million carried by JAL.

“We stand ready to make a significant investment in JAL, superior to anything a competitor will offer,’’ Theo Panagiotoulias, American Airlines’ vice president for Asia and the Pacific, said in Tokyo yesterday.

Panagiotoulias said American would offer JAL an equity investment on top of the approximately $500 million the Japanese airline is currently reaping annually from its participation in the OneWorld alliance. American is the operating unit of AMR Corp., of Fort Worth. Delta is based in Atlanta.

That, he said, would make American’s offer more financially attractive to JAL, because some of Delta’s proposed aid package would go to pay financial penalties the airline would incur for switching alliances.

Finances at JAL, which is the largest Asian carrier by revenue, have been battered by a drop in passenger traffic because of the global economic crisis. Huge pension obligations, an aging fleet, and dozens of unprofitable routes have also weighed heavily on JAL’s bottom line.

The airline posted a loss of $361 million in the latest quarter and said it was in new talks to suspend loan payments as it awaited formal approval for a government-led bailout.