American Airlines Steps Up Efforts To Woo JAL

American Airlines on Thursday stepped up efforts to save its partnership with Japan Airlines, the troubled carrier that is the lynchpin of its Asian network, by promising a $1.1bn investment to support the group.

The investment – much of which would be provided by US private equity group TPG – exceeds a rival offer from Delta Air Lines, which is trying to lure JAL away from Amercian’s OneWorld alliance.

Last month Delta and its SkyTeam partners offered to inject $500m of new equity into JAL and to extend another $500m in asset-backed financing and compensation for the cost of switching teams.

Delta responded to American’s announcement on Thursday by saying it, too, might find an outside financial investor to bolster its offer.

JAL’s strong links to China and other Asian destinations have made it an attractive ally for US carriers in spite of its financial problems. JAL lost more than Y130bn in the six months to September and is struggling to manage one of the industry’s heaviest debt loads.

American and Delta expect ties with JAL to become even more valuable once a long-awaited “open skies” deal between Japan and the US is completed, likely next year. The deal would pave the way for full-scale joint ventures between US and Japanese carriers that could be exempted from US anti-trust rules.

American declined to say how much of the promised investment would come from TPG and how much would come from American and its OneWorld partners, which include British Airways. The US carrier said the total present value to JAL of remaining in One World was $1.8bn once projected revenue gains from an American-JAL joint venture were factored in.

In addition to wooing JAL management, American and Delta are fighting to win over the Japanese government, which has taken over efforts to revive the former state-owned airline. The Enterprise Turnaround Initiative Corporation, a government-backed investment body, is working on a restructuring plan that it expects to announce early next year.

Both US airlines have dispatched high-ranking lobbyists to plead their case.

Yesterday Norman Mineta, the former US transportation secretary, argued for the American Airlines side that a Delta-JAL joint venture would be too dominant to win approval from US regulators.

Together the two carriers would control about 60 per cent of US-Japan traffic.

Delta – backed by its own ex-government specialists – counters that joint ventures with higher market shares have won so-called anti-trust immunity in the past, and that the US has never rejected an application for immunity from airlines based in countries covered by “open skies” deals.

source : Financial Times