Delta Air Offers $1 Billion to Japan Air, Rivals AMR

Delta Air Lines Inc. and its SkyTeam alliance partners offered as much as $1 billion in incentives to lure Japan Airlines Corp. away from the Oneworld group led by American Airlines.

SkyTeam airlines may invest $500 million in Japan Air, and Delta would supply $200 million in financing and $300 million to cover lost sales, Delta President Edward Bastian said today. American’s bid may consist of $1 billion from private-equity firm TPG Inc. and $300 million from the airline.

Delta’s proposal escalated the jockeying with AMR Corp.’s American for a stake in money-losing Japan Air, also known as JAL. The U.S. carriers, the world’s biggest, are vying for access to JAL’s routes in its home country and in China, Asia’s largest air-travel market.

“If Delta wins this contest, they have got a huge position of strength and would be in a position to dominate a fair piece of the trans-Pacific market,” said George Hamlin, managing director at New York-based consultant ACA Associates. “There is a lot at stake there for American.”

Bastian unveiled Delta’s offer in Tokyo, where JAL is based, and said the carrier may boost annual sales by $400 million by joining SkyTeam because Delta flies three times as many passengers to Japan as American. Delta wouldn’t cede any landing slots at Tokyo’s Narita Airport, Bastian said. The airline is the largest overseas carrier at the facility.

‘Survive and Prosper’

“Our goal for JAL is for it to survive and prosper,” he said. “JAL needs to survive for the long-term needs of the Japanese people.”

Delta, based in Atlanta, has promised JAL to “bear the whole cost of the transition no matter how much it is,” Bastian said. He didn’t give details on how a SkyTeam investment would be funded. A JAL spokeswoman, Sze Hunn Yap, declined to comment.

American and TPG, both based in Fort Worth, Texas, said in a statement their offer would provide “significant value” and be part of a “comprehensive recovery plan” for the Japanese carrier after three annual losses in the past four years.

Delta’s offer to make up for lost revenue from shifting alliances “at best merely gets JAL back to status quo, while introducing costly disruptions and distractions,” American said today in its own statement. TPG is awaiting approval from JAL and the Japanese government to become a partner in the bid.

JAL, Oneworld

JAL now gets as much as $500 million in annual revenue from its Oneworld partners, and approval from U.S. regulators to coordinate pricing on trans-Pacific routes potentially may add $100 million a year more, American has said.

Air France-KLM Group, a SkyTeam member, is prepared to invest in JAL to woo the airline away from Oneworld, Air France Chief Executive Officer Pierre-Henri Gourgeon said today in an interview. He declined to discuss the potential amount of assistance.

“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. in Tokyo. He rates JAL as “market perform.”

Japan Air is seeking loans of 125 billion yen ($1.4 billion) from the Japanese government to maintain operations and has applied to negotiate out-of-court agreements with creditors to temporarily freeze debt payments. Transport Minister Seiji Maehara said in a parliamentary session that a court-led bankruptcy for the carrier couldn’t be ruled out.

Role of Alliances

Delta may provide aid to JAL before the Enterprise Turnaround Initiative Corp. of Japan decides to support the Asian carrier’s reorganization, Nikkei English News quoted Bastian as saying. The funding may be used in place of bridge loans the government is trying to secure, Nikkei said.

AMR fell 22 cents, or 3.7 percent, to $5.77 at 4 p.m. in New York Stock Exchange composite trading, while Delta dropped 14 cents, or 1.8 percent, to $7.76. JAL declined 3.9 percent to 98 yen in Tokyo.

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 began a marketing alliance with American in 1999, and joined Oneworld in 2007.

China Southern Airlines Co., the second-biggest member of SkyTeam by passenger numbers, is “involved in the incentives package,” said an official at the carrier, who declined to be identified because of a company policy. Korean Air Lines Co. declined to comment. Air France-KLM Group spokeswoman Brigitte Barrand said the airline had no immediate response.

‘Significant’ Investment

TPG is ready to inject 100 billion yen into Japan Air, said Kozo Iino, a spokesman. American said in its statement that it is prepared to make a “significant” investment in JAL, without elaboration. The carrier’s offer may be as much as $300 million, a person familiar with the matter has said.

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.

Oneworld carriers, including British Airways Plc, Qantas Airways Ltd. and Cathay Pacific Airways Ltd., are crafting incentives to help keep JAL in the alliance, John McCulloch, the group’s managing partner, said Nov. 13, without providing details.