American Airlines, Delta continue tug-of-war over JAL

Friday 04th December, 04:07 AM JST

TOKYO —

American Airlines upped the ante in the tug-of-war over Japan Airlines, vowing Thursday to lead a $1.1 billion investment in the struggling carrier to prevent it from falling into the orbit of rival Delta.

American’s chief financial officer, Tom Horton, told reporters that the offer is “far superior” to the $1 billion rival proposal from Delta Air Lines and its SkyTeam partners.

He refused to describe the composition of the offer, or say how much of the money would come from American. But he said the proposal by American, its oneworld partners and private equity firm TPG Inc. is part of a larger restructuring plan to get JAL back on solid footing.

Horton and his team asserted that if JAL enhances its links with American, over a 10-year period it would gain additional revenues of some $700 million.

Delta, meanwhile, is trying to lure JAL away from its partnership with American.

Aviation consultant Mark Kiefer of CRA International in Boston said the battle is far from over.

“It does sound like it has the potential to drag on further,” Kiefer said. “There’s a lot at stake here, especially given the importance of the Japanese market and the Asian market to all of these carriers.”

Demand for air travel has been under intense pressure from the global economic slowdown, but U.S. carriers that compete internationally know it will be important to have a strong presence overseas when things rebound. Airlines can reap a premium for long-haul seats, particularly business and first class.

Japan Airlines has been teetering for years, hammered by surging fuel prices, global competition and an image problem caused by a series of safety lapses. It lost $1.5 billion in the first half ended September and has obtained approval for government loans in recent weeks to avoid grounding flights. The airline remains attractive as a partner because of its extensive routes in Japan and other important markets in Asia.

JAL President Haruka Nishimatsu has said he will make a decision regarding the offers by the end of the year.

Delta President Ed Bastian said Thursday the billion dollar offer by his airline and its SkyTeam partners to get Japan Airlines to join their alliance is still on despite the dollar’s recent weakness. He expressed confidence the deal will get clearance from regulators.

“The offer was stated in dollars,” Bastian told reporters at a Tokyo hotel. “That’s not enough to change our offer,” he said in acknowledging the dollar’s fall. It dived to a 14-year low against the yen last week.

Bastian said Delta, based in Atlanta, would be willing to consider teaming up with a third-party investor if the Japanese government wanted more money pumped into JAL. He did not provide details.

American, a unit of AMR Corp, which is based in Fort Worth, Texas, has said if JAL switches from the oneworld alliance it will cost the Japanese carrier up to $500 million in lost revenue in the first two years after the changeover.

American officials have argued that if JAL sticks with them they could both apply for antitrust immunity from U.S. and Japanese regulators and bring in up to $100 million a year in additional revenue.

The immunity allows U.S. and foreign carriers to work closer together in coordinating schedules, sharing revenues and carrying each other’s passengers—moves that can boost profits.

Such a tie-up depends on U.S. and Japanese governments striking a so-called open skies agreement that would reduce barriers to airlines from one country operating in the other.

Delta’s lawyer said if JAL decides to join the SkyTeam alliance they could also win antitrust immunity.

“A JAL-Delta alliance would pose no threat to competition,” said Jeffrey Shane, a partner at Hogan & Hartson and former U.S. transportation undersecretary, who appeared with Bastian at the news conference.

But Horton asserted in his meeting with reporters in Tokyo that a Delta-SkyTeam-JAL partnership would not pass regulatory muster and would hurt competition.

“It is in the best interest of U.S.-Japan customers to have three robust alliances competing for their business instead of just two,” Horton said.

Horton was joined by former U.S. Transportation Secretary Norman Mineta, who insisted the risk to competition from Delta’s proposal is too great.

“There is no precedent for the Department of Transportation to immunize two airlines that operate connecting hubs in the same market, which is the case with Delta-Northwest and Japan Airlines,” Mineta said.

Delta acquired Northwest Airlines last year, inheriting Northwest’s hub outside Tokyo.

Japan Airlines has been losing Japanese customers to its local rival All Nippon Airways, which has an international partnership with United Airlines through the Star Alliance.

___

Weber reported from Atlanta.

Wire reports

› Login to comment

Latest 15 of 18 Total Comments Show All

elbudamexicano at 04:37 PM JST - 3rd December

Both Delta and JAL are perfect for each other, they both SUCK!
Farmboy at 04:38 PM JST - 3rd December

American is a better fit, in my opinion.
5SpeedRacer5 at 04:39 PM JST - 3rd December

There is this beatiful girl and she has been dating this guy. Well, they have kind of fallen on hard times, especially her. But her uncle has this huge trust fund, and I know he will not let her fall into really really dire straits. So I put on my best suit and bought some roses and took her dancing.

She dumped her old boyfriend, and now I am living on easy street. People call me Mr. Delta and my babe is Mrs. JAL. And EVERYBODY smiles when they see us coming down the street on our way to pick up some more money from her uncle, Mr. BOJ.

One of the oldest tricks in the book. Delta is desperate... much more so than JAL. Guard your daughters Japan.
hoserfella at 05:08 PM JST - 3rd December

5SpeedRacer5 - You could have made your very obvious point in 1/10 the space without the inane euphemisms.
Alphaape at 05:24 PM JST - 3rd December

I lost miles when Delta took over NW/Continental. I hope this doesn't happen, I get tired of loosing miles at their whim.
Marius2 at 06:02 PM JST - 3rd December

But...but...Americans could never understand the uniqueness of Japan and its flying customs and culture. How to, say, make a traditional dialing motion of knobs that brings up the cabin temperature to 27c. 27,2 is too high. And Celsius, that's just too complicated for non Japanese to understand.

I'd say this deal is doomed.
Foxie at 06:28 PM JST - 3rd December

I wonder if the pilots will be on American salaries after that happens.
ichibanshibori at 09:50 PM JST - 3rd December

American Airlines was rated the worst US airline in 2008 (http://bit.ly/pv0NL), and my bets are that AA hasn't made many improvements in 2009.

The business combination of AA's poor service and JAL's lack of ability to make a profit will be the final nail in the coffin for the Japanese aviation industry.

Passengers should (and will) choose airlines other than American Airlines and JAL should this merger actually happen.
usaexpat at 01:15 AM JST - 4th December

Hard to tell who's the worse airline but I'll say its American by a nose. If JAL sinks to these levels of "service" they really are done.
ptolemy at 02:14 AM JST - 4th December

Woo-hoo! Japanese-American Airlines, or Delta-Sort of Asia Airlines.

I hope hope JAL keeps their hot, chicky momma flight attendants, and not take on more hefers from the Delta crowd. The JAL flight attendants are the reason I fly JAL, and no others.
YuriOtani at 05:03 AM JST - 4th December

Yes it is hard to place a worse airline. Both American and Delta just SUCK and JAL is right with them. The Delta flight attendants seem somewhat indifferent to me. Of course it does not matter to me what they look like. Suppose I will stick with Asina for the time being. I can get a very nice fare for Business Class from my travel agent. It also avoids Narita Airport grins As for American, Delta and JAL, I avoid flying with them at all costs!
NeoJamal at 06:50 AM JST - 4th December

1 question: WHY US AIRLINES?
888naff at 07:26 AM JST - 4th December

Either way, bring the money.. don’t bring your worst in the developed world airline service standards.. probably not gonna to wash with these customers. Although the JAL air hostesses could have an easier job for the same money.. but they probably have too much pride, so not gonna lower their standards.
The758 at 08:40 AM JST - 4th December

If JAL is looking for long-term stability, AA is probably the better answer. It is the only American carrier never to have gone bankrupt, and one of the world's largest airlines. Plus One-World has a stronger lineup than SkyTeam.

As for all these people saying 'JAL sucks', to what are you comparing them? Folks here must be flying around in their private jets or something.
mrsynik at 10:38 AM JST - 4th December

As for all these people saying 'JAL sucks', to what are you comparing them?

Try flying either of the Korean carriers or Singapore Airlines. Even Cathay is better service than JAL.