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American and oneworld offers USD1.1 billion in Japan Airlines bid; Delta seeks another partner


The battle for Japan Airlines has continued to intensify, with American Airlines confirming it would, supported by the TPG investment group, be “willing to provide funding of up to USD1.1 billion, should this be welcomed by the airline and the Japanese government”, trumping the Delta-led SkyTeam bid of USD1.02 billion. oneworld members are also offering a range of other sweeteners as part of the alliance’s ‘total value proposition’ for JAL, worth an estimated (by oneworld) USD700 million.

The Chief Executives of the alliance’s member airlines reaffirmed their belief that the alliance “offers JAL by far the best revenue opportunities, the best access to funding, the best network fit, the best quality partners, the best hubs, the best experience to help it adapt to the new competitive and financial environment – and the best prospect for a stable and successful future”.

American Airlines’ Chairman and CEO Gerard Arpey added, “the oneworld alliance already has a significant investment in the success of Japan Airlines, and we are prepared to do even more to ensure that American, oneworld and JAL have a successful partnership for the long-term.

Other key elements of the proposal include:

  • Development of an anti-trust immunised (ATI) joint venture agreement across the Pacific with American Airlines, with an application for ATI to be filed immediately after the US and Japan reach an “open skies” agreement;
  • Expanded cooperation with British Airways and Finnair, to provide JAL with “substantially improved access to Europe” over London Heathrow and Helsinki;
  • Provision of Qantas’ expertise in developing its Jetstar, value-based airline and its two-brand strategy. Qantas has offered JAL “full access to this expertise should it be interested in drawing upon it, enabling it maximise its ability compete in a sector of growing importance in today’s airline industry environment”.

Qantas would help support JAL introduce an LCC as part of its turnaround, in response to ANA's move to do so.

Delta also seeking a third party investor

Delta Air Lines reiterated that it, in conjunction with its other SkyTeam alliance members, are ready to offer JAL a financial aid package of approximately USD1 billion, including a USD500 million equity investment. Delta added that it is also considering teaming up with a third party investor, such as a private equity fund or venture capital firm, to support the carrier.

Delta President, Ed Bastian, told Reuters, “we are putting our capital at risk, not someone else's capital... I think that's important. However, if the (Japanese) government asks us to go back and raise more capital, we are happy to do so”.

The unofficial auction for JAL looks set to escalate.

It’s about much more than JAL

American and Delta want much more than a minority stake in JAL. What they are looking to secure is access to Tokyo to unlock the wealth that beckons over the Japanese hub in nearby China, as well as linking east and westwards. Meanwhile, Japan remains the highest yielding (in terms of business travel) market in north Asia.

JAL President, Haruka Nishimatsu, has stated he would make a decision regarding the offers by the end of the year.

Much depends on the outcome of the final round of US-Japan open skies discussions for the year next week in Washington. There are hopes a deal will be struck, but some reports suggest the two sides remain some distance apart on key issues such as access to Tokyo area airports for US carriers.

The bidding war is part of a much broader rescue plan for JAL, which could involve the Enterprise Turnaround Initiative Corp, a government-backed entity that will decide by the end of Jan-2010 whether it will participate in the restructure.

See related report: Japan Airlines and the future of global aviation. Japanese Government holds the aces

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