Delta reportedly in talks with Japan Airlines

By Kelly Yamanouchi

The Atlanta Journal-Constitution

Delta Air Lines is reportedly in talks about making a major investment in Japan Airlines.

If a deal is struck, it could allow struggling Japan Airlines to receive “hundreds of millions of dollars in assistance” and make Delta a leading shareholder, according to a report by Japan’s public broadcaster, NHK, citing close sources.

It could be a major move on a global stage for Atlanta-based Delta. With its acquisition of Northwest Airlines last October, Delta is now the world’s largest airline.

The NHK report also said the two carriers are planning joint operation of international flights. Such a deal could give Delta a partner in Japan, which it is lacking in its SkyTeam global airline alliance, an agreement among several airlines to share routes and passenger privileges. It could also strengthen the Tokyo hub Delta acquired through its merger with Northwest Airlines last year and expand its network in Japan.

Japan is a “very concentrated market” for airlines, with two major carriers — Japan Airlines and All Nippon Airways, said airline consultant Bob Mann. Both are part of alliances that compete with Delta’s SkyTeam.

“Not having either of them in SkyTeam is a major disadvantage,” Mann said.

For Japan Airlines, the deal could provide a critical cash infusion. Japan Airlines also wants to use the partnership to help restructure its management, according to NHK. Japan Airlines and All Nippon Airways are getting bailouts from the Japanese government through loans from state-owned banks after the carriers suffered their worst declines in passenger counts in five years.

“We are examining a wide range of measures which include tie-ups with other airlines but nothing concrete has been decided,” said Japan Airlines spokeswoman Carol Anderson. Delta spokesman Kent Landers declined to comment on the matter.

An industry expert who spoke to someone close to the negotiations said the talks are very preliminary and could be several weeks or months away from a conclusion. It’s too early to tell if the talks will be successful.

Standard & Poor’s analyst Jim Corridore sent a note to investors Friday saying he thinks Delta has enough cash to make a major investment. Buying a stake in Japan Airlines would increase Delta’s presence in Japan, “helping what we already see as the most diversified international route network of any U.S. carrier.”

Such a deal would also be “very financeable,” Mann said.

Some U.S. airlines have held small stakes in foreign airlines in the past, including an American Airlines stake in Spain’s Iberia and Continental Airlines stake in the parent company of Copa Airlines in Panama.

Restrictions on foreign ownership of airlines have kept such activity limited.

The reports on Delta-Japan Airlines talks come against the backdrop of aviation treaty discussions between the United States and Japan this week. Delta chief executive Richard Anderson told employees earlier this year that the company is closely watching the talks between the United States and Japanese governments on flights between the two countries. He said Delta opposes continued restrictions of U.S. carriers’ operations at Tokyo’s Haneda Airport.

Bloomberg quoted Japan’s Civil Aviation Bureau director-general Ryuhei Maeda as saying that he has “strongly recommended” to Japan Airlines a tie-up with Delta.

It’s unclear how a Delta deal with Japan Airlines could affect treaty talks.

“If by allying with one of the major participants in the market, Delta could in effect bypass or minimize the restricted market situation, then that’s certainly to their advantage,” Mann said. “If you can’t beat them, join them — that’s really what it comes down to.”

But King said Delta should also expand further in other parts of Asia, such as China, which airlines can now operate nonstop flights to, without stops in Japan.

To be sure, Delta’s Tokyo Narita hub “ran the risk of being marginalized” as airlines around the world started flying long-haul aircraft that could bypass Tokyo and fly nonstop to China, Mann said. The combination with Japan Airlines’ sizeable hub at Narita “really preserves the value” of Delta’s Narita hub, he said.