Struggling Japan Airlines (JAL) was offered a US$1.1 billion lifeline yesterday from partners led by American Airlines, amid a bidding war with Delta Air Lines for a piece of Asia’s biggest carrier.
JAL, which last month reported its fourth straight quarterly loss, has been hovering on the brink of bankruptcy in a crisis blamed on the global aviation industry downturn, mismanagement and its huge pension obligations.
American Airlines and Delta Air Lines have both sought a stake in JAL, hoping to expand their Asian operations ahead of an Open Skies agreement expected to be signed soon between Washington and Tokyo.
PHOTO: REUTERS
At a Tokyo press conference, American Airlines, the oneworld alliance — which now groups American and JAL with nine other major airlines — and private equity company TPG pitched their offer.
financial foundation
“As part of a comprehensive restructuring American/oneworld and TPG are prepared to invest up to US$1.1 billion ... in JAL to bolster its financial foundation for the near and long term,” they said in a statement.
“American is prepared to make a substantial commitment as part of the investment,” the airline’s chief financial officer Tom Horton said, without specifying what would be the airline’s exact contribution.
He also said American would only seek management representation if invited.
Delta Air Lines, the world’s largest carrier and a member of the SkyTeam group, last month offered JAL a US$1 billion financial package.
Delta said the rescue package on the table included a US$500 million equity injection, a revenue guarantee worth US$300 million and US$200 million in asset-backed funding.
Delta president Edward Bastian, who was also in Tokyo yesterday, said the company and its global alliance partners are ready to offer third-party additional funds to JAL, Kyodo news agency reported.
“If there was interest by the government in raising more money than that [the US$1 billion package] by introducing outside, third-party investors, we would be happy to support that effort as well,” he was quoted as saying.
hurdles
Horton said that by accepting American’s bid, JAL would gain an additional US$700 million through the benefits of staying with oneworld, and because of what he said would be a greater chance of the deal passing US regulatory hurdles.
Horton said American believes that the US Department of Transportation would reject a JAL tie-up with Delta/Skyteam as anti-competitive because it would take their share of the US-Japan market to 62 percent.
He said currently the three global airline alliances, the other being the Star Alliance, have about one-third of the US-Japan market each.
The US and Japan are expected to sign an Open Skies agreement shortly, the Nikkei Shimbun reported, saying the deal could be inked in three-day talks due to start on Monday in Washington.
Such an agreement gives airlines from both countries greater freedom to decide the routes and frequencies of their flights, with them aim of leveling the playing field between airlines and increasing choice for travelers.
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