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Japan Air Stake May Help Delta or American With China Access
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Asian countries, needs more money as it predicts a fourth annual loss in five years amid the biggest passenger drop since 2003. The carrier, known as JAL, will present the outline of a mid-term reorganization plan to a government panel in Tokyo today, according to spokeswoman Sze Hunn Yap.
Japan Air expects to complete tie-up talks with a foreign carrier by mid-October, President Haruka Nishimatsu said today, without specifying any potential partner. Delta, which lacks a so-called code-sharing agreement with a Japanese carrier, seeks an expanded Asian network to compete with American, currently in the same Oneworld alliance as JAL, and All Nippon Airways Co., a member of the Star Alliance group.
"Cash is a commodity airlines treasure and now is not a great time for an airline to invest in another carrier," said Henry Harteveldt, senior analyst with Forrester Research Inc. in Cambridge, Massachusetts. "But JAL's role in the global aviation community, the importance of Japan and the potential upside, may make a modest investment in JAL a good thing."
JAL may raise about 100 billion yen ($1.1 billion) in a private sale of shares to foreign airlines including Delta and American, Kyodo News reported today, without saying where it got the information.
Korean Air
Korean Air Lines Co. is also considering buying a stake in JAL, Kyodo reported today. JAL hasn't made any decisions on an investment, Tokyo-based spokesman Taro Namba said in a telephone interview today. Seoul-based Korean Air denied it may buy a stake in JAL in an e-mail statement today.
Alliances such as Oneworld and SkyTeam
A tie-up with Asia's largest airline would give American or Delta access to more cities in Japan as well, and the ability to sell seats on JAL flights. American already has some code-share flights with JAL.
'Desperate'
"These guys are desperate to try and get the relationship up, and they want passengers," said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets. "Japan Air has flights going to a lot of Chinese cities."
Japan Air is planning the biggest route cuts in its history, President Nishimatsu said. The carrier will scrap about 20 international flights, or about 20 percent of its overseas routes, through fiscal 2011 starting next month, the Nikkei newspaper said earlier today, without saying how it obtained the information. JAL spokesman Namba declined to comment on route cuts.
The airline will start cutting jobs this year, Nishimatsu said. It plans to cut 6,000 jobs over three years under a new management plan, Kyodo News said today, without saying where it obtained the information. The company has already said it will eliminate 1,400 administrative jobs, without giving a time frame.
"It's still unsure whether JAL will be able to turn around," said Mitsushige Akino, who oversees $645 million in assets in Tokyo at Ichiyoshi Investment Management Co. "It may be better to make it a subsidiary."
Three Bailouts
Japan Air was privatized in 1987 and has received three government bailouts since 2001. The most recent rescue was a loan of 100 billion yen from the state-owned Development Bank of Japan and other local lenders in June.
"Drastic" changes are needed at the airline, Hiroaki Taniguchi, vice minister of Japan's transport ministry, said yesterday. JAL won't be forced into a "specific" tie-up with a foreign carrier, he said.
The talks involving Japan Air, American and Atlanta-based Delta have been described by people familiar with the matter who asked not to be identified because details aren't public.
Japan Air fell 3.4 percent to 170 yen at the close of trading in Tokyo. It has dropped 20 percent this year compared with a 15 percent gain in the Nikkei 225 Stock Average.
Delta, the world's largest airline, has declined to comment on any JAL talks, while Charley Wilson, an American spokesman, said discussions were under way without saying what they covered.
Plunging business and leisure travel during the country's worst postwar recession helped drag Japan Air to a first-quarter loss of 99 billion yen, the most in at least six years. The loss for the year ending in March will be 63 billion yen, according to the airline.
Overseas passengers plunged 25 percent in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003. Japan Air flies to 13 cities in mainland China as well as Hong Kong, according to its Web site. It also serves three Korean cities as well as Indonesia, the Philippines, Malaysia and Taiwan.
"Japan Air has a lot of places that Delta does not fly," Atlantis's Merner said. "American doesn't have much at all in Asia."
To contact the reporter on this story: Chris Cooper
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