14-Sep-2009 11:37 AM

JAL in talks with Delta and American Airlines; seeking further funding

Japan Airlines, which is expected to announce its management improvement plan by the end of Sep-2009 under supervision of the Japan Ministry of Land, Infrastructure, Transport and Tourism, is reportedly considering the following options, as part of its restructuring efforts to return to sustainable profitability (Bloomberg/AFP/AP/Nikkei/Dow Jones/Business Week/Financial Times, 12/13/14-Sep-2009):

  • Delta Air Lines: Delta and JAL reportedly held preliminary talks on 11-Sep-2009, with Delta reportedly expressing interest in investing up to JPY50 billion (USD550 million) in JAL, giving the US carrier a stake of up to 11.2%. The agreement would also reportedly include possible investments from Delta’s European partner, Air France-KLM, as well as have JAL change to become a member of the SkyTeam alliance (from oneworld). There have been reports that an agreement could be signed by Nov-2009, with the Ministry of Land, Infrastructure, Transport and Tourism expressing support for the potential agreement;
  • American Airlines: JAL’s oneworld alliance partner is also negotiating a possible investment in JAL, as part of which the carriers would also reportedly seek antitrust immunity to establish a “far reaching” and comprehensive trans-Pacific JV agreement. According to reports, American has been in "intensive negotiations" with JAL for more than a month, with the carrier confirming it is “in discussions at the senior executive level in Japan with JAL";
  • Open skies: The interest from the two US carriers comes as the US and Japan last week met to discuss an open skies agreement. According to the US Department of the State, the agreements would expand international travel, trade, and commerce between the two countries by “eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing.”  With the agreement, airlines would reportedly gain unlimited access to all points in either country. Talks will resume in Oct-2009, with an agreement expected to be completed by the end of 2009;
  • Fund raising: JAL is reportedly considering plans to raise approximately JPY250 billion (USD2.8 billion) by Mar-2010. Under the plan, the carrier will reportedly request JPY100 billion (USD1.1 billion) in loans from financial institutions;
  • Share issuance: JAL reportedly plans to separately raise more than JPY100 billion (USD1.1 billion) through a new share issuance;
  • Subsidiaries: JAL is reportedly considering raising a further JPY50-60 billion (USD550-659 million) by selling shares in subsidiaries and other assets.  The carrier reportedly plans to request aircraft manufacturers, trading houses, investment funds and the Development Bank of Japan to take shareholdings;
  • Job reductions: JAL reportedly plans to eliminate 5,000 jobs over three years under a new management plan, equating to approximately 10% of the existing workforce. The expected move will reportedly produce more than JPY100 billion (USD1.1 billion) in annual cost savings;
  • Capacity plans: JAL is reportedly planning "significant and drastic suspension" and reduction of loss-making international services. [more - Perspective]

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