Delta, SkyTeam offer $1 billion to Japan Airlines

Associated Press

TOKYO — Delta Air Lines and its alliance partners said Wednesday they are making a billion dollar offer intended to lure loss-making Japan Airlines from its affiliation with American Airlines.

Delta is "by far the strongest partner for Japan Airlines," company president Edward Bastian told reporters in Tokyo.

The offer from Delta and the SkyTeam alliance includes a $500 million capital investment, $300 million in short-term revenue guarantees, and $200 million in asset-backed financing for JAL.

SkyTeam would also cover the entire cost for JAL to transfer from the oneworld alliance, estimated by Delta to total $20 million.

The airline, Asia's largest, is seen as a valuable partner because of its routes in China and Japan. Bastian said he hopes JAL can serve as the Atlanta-based carrier's "face of Asia."

But its business is struggling. The Tokyo airline said last week it booked $1.5 billion in losses for the first half of the current fiscal year and was seeking government help in dealing with its creditors. Its interest-bearing debt totals nearly $10 billion.

Hit by a collapse in travel brought on by the tepid global economy and the swine flu outbreak, the company has been approved for a government-run turnaround. It is mulling large job cuts after already lowering its staff mainly through attrition as well as taking other measures such as cutting unprofitable routes.

Japan Airlines spokesman Sze Hunn Yap said the company is aware of Delta's offer but could not comment.

Bastian said JAL's relationship with the oneworld alliance has hurt the airline, with flights between North America and Japan decreasing in recent years.

In contrast, joining SkyTeam would offer JAL access to the 3.7 million Delta customers that fly every year from the U.S. to Japan. That represents a more than threefold increase from American's current passenger traffic out of the U.S. and $400 million in higher annual revenue, Bastian said.

"Continuing its current partnership threatens JAL's long-term international competitiveness," he said. "Only through a partnership with SkyTeam and Delta will JAL have the strength it needs to regain a position of international leadership in Japan, Asia and across the globe."

The Japanese company has been American's partner since the mid-1990s. They sell tickets for each others' routes as well as sharing revenue and customer frequent-flier bonuses.

American Airlines and Texas-based private investment firm TPG Inc. issued a statement Wednesday reiterating their commitment to JAL, saying that sticking with oneworld would be its best path toward recovery and future growth.

"American and its partner, TPG, stand ready to deliver significant value to JAL through a strengthened commercial relationship that will be part of a comprehensive recovery plan — if invited, welcome and deemed appropriate by JAL and the Government of Japan," they said.

The Nikkei financial daily reported Wednesday that TPG is looking to invest 100 billion yen ($1.1 billion) in JAL as part of a coordinated effort with American Airlines.

JAL president Haruka Nishimatsu has said he wants to make a decision on any capital tie-ups by the end of the year.

The SkyTeam alliance includes Delta, Air France KLM, Aeroflot, AeroMexico, Alitalia, China Southern Airlines, Czech Airlines and Korean Air.