Delta offers $1 billion to JAL to jump ship

Ante covers hit from severing American's oneworld ties

Compiled From Bloomberg, Kyodo

Delta Air Lines Inc. and its alliance partners have prepared a $1 billion package for Japan Airlines Corp. to lure the carrier away from an alliance with American Airlines, the company said Wednesday.

JAL shares meanwhile plunged the same day after it was reported that transport minister Seiji Maehara said he wouldn’t rule out letting the carrier go bankrupt.

Delta and other SkyTeam members may buy $500 million in JAL shares or convertible securities, according to a document handed to reporters at a Delta event in Tokyo. There would also be as much as $300 million in guarantees to cover any drop in sales caused by JAL joining SkyTeam instead of American’s oneworld grouping.

Delta, the world’s biggest airline, has started to woo JAL ahead of a U.S.-Japanese “open skies” agreement that will liberalize travel between the two nations.

The SkyTeam proposal would also include $200 million in asset-backed financing and $20 million to cover JAL’s costs for switching alliances.

JAL spokeswoman Sze Hunn Yap declined comment on the offer.

Delta, which doesn’t have an alliance partner in Japan, wants access to JAL’s network in the world’s second-largest economy, and in China, Asia’s biggest air-traffic market.

American may team with major U.S. private investment firm TPG to buy a $300 million stake in JAL, according to a source, as the Tokyo-based carrier seeks new investment and government support following three annual losses over the past four years.

On Wednesday, American Airlines Inc. and TPG Inc. reaffirmed their readiness to invest in JAL. “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, welcomed and deemed appropriate by JAL and the government of Japan,” their statement said.

“JAL has been very well served by its oneworld participation, which continues to be in JAL’s best interest,” said the statement released in the United States, a copy of which was obtained in Tokyo.

SkyTeam, oneworld and Star Alliance, the three main global airline groups, help carriers cut operating costs and allow them to expand sales networks without the difficulties or expense of a merger.

JAL gets as much as $500 million a year in additional revenue from its oneworld partnerships.

Staying in oneworld would “make more sense,” and it would be “easy” to seek antitrust immunity to deepen ties with American, JAL President Haruka Nishimatsu said last week. The airlines established a marketing alliance in 1999, and JAL joined oneworld two years ago.

JAL is expected to select its alliance partner before the end of the year.

On Wednesday, JAL shares tumbled 3.9 percent to ¥98 in Tokyo, their lowest close since they were listed in October 2002, after Reuters reported that Maehara said he wouldn’t rule out bankruptcy for the carrier. Maehara told a Diet committee he never said he wouldn’t let the Tokyo-based carrier fail, according to the report.

JAL last week scrapped its full-year earnings forecast after posting a first-half loss of ¥131 billion. JAL is seeking ¥125 billion in loans and out-of-court accords with creditors to temporarily freeze debt payments.