Nov. 13, 2009 (The Yomiuri Shimbun) -- NEW YORK--American Airlines and Delta (NYSE:DAL) Airlines are locked in a fierce battle as they jockey over a possible tie-up with Japan Airlines. The two major U.S. airlines believe it vital to join with JAL to gain an advantage before a possible bilateral airline liberalization agreement between Japan and the United States.
American, the world's No. 2 air carrier, expressed its intention to propose to jointly invest in JAL with the U.S. major investment fund TPG, a backer of American, while the world's largest airline company, Delta, has sounded out JAL on the prospect of joining with it.
However, the prospect of a tie-up with JAL remains uncertain for both U.S. airline companies as long as the Japanese carrier is subject to a reconstruction program under state control. ===
Alliance loyalties
Thomas Horton, executive vice president of finance and planning and chief financial officer of American's parent company AMR Corp., said during an interview with The Yomiuri Shimbun on Thursday that maintaining and firming up the strategic relationship with JAL would create the greatest value.
In order to keep JAL in the Oneworld airline alliance to which American belongs, AMR intends to boost cooperation with JAL in a variety of ways, including on financial issues, Horton said.
Delta holds 32 percent of the market share of the Pacific route linking Japan and the United States, American 8 percent and JAL 22 percent.
If JAL joins with Delta, American would lag far behind in competitiveness in the Japan-U.S. market.
Meanwhile, Delta presented a plan to finance several tens of billions of yen to JAL, and also proposed the U.S. company would bear the burden of the cost of transferring JAL from Oneworld to the SkyTeam alliance, to which Delta belongs.
Delta made the proposal as American insisted that transferring airline alliances would create a financial burden.
The struggle between the two U.S. air carriers over JAL was effectively put on hold after Construction and Transport Minister Seiji Maehara said in late September that the government would formulate a plan to reconstruct JAL under a task force of corporate experts.
However, the battle resumed at the end of October, when JAL requested financial support from the Enterprise Turnaround Initiative Corporation of Japan (ETIC).
Both U.S. companies contracted with consulting firms and sent top executives to Japan to strongly lobby the Japanese government. ===
'Open skies' potential
The two leading U.S. air carriers were eyeing liberalization of the airline industry, which is expected to be agreed upon by the end of this year in discussions between the Japanese and U.S. governments.
If a so-called open skies agreement is realized, U.S. antitrust immunity will be conferred upon Japanese and U.S. airline companies, which will make it easier for them to conduct code-sharing.
The air carriers also could expect to enjoy the merits of business efficiency on such issues as earnings allocation and schedule coordination.
Such merits would be nearly tantamount to those obtained through a merger, sources said.
All Nippon Airways currently has a tie-up with the world's No. 4 airline company, United Airlines. If American and Delta fail to link up with JAL, they will not be able to fully tap the benefits from any liberalization agreement.
Many JAL officials hope to strengthen the carrier's relationship with American, as the two companies have cooperated each other in code-sharing since 1999.
TPG also has been involved in the restructuring of many other airline companies. TPG, for example, invested in Continental Airlines (NYSE:CAL) , which ran into financial difficulty in the 1990s, supporting the carrier's reconstruction of its management.
In the course of using ETIC for financial support, JAL President Haruka Nishimatsu and the carrier's other top management are expected to resign.
Some government officials said significant business endeavors, such as embarking on tie-ups, should be left to new management.
The Construction and Transport Ministry is believed to support Delta's proposal to tie up with JAL from a maintenance and airline network expansion standpoint, according to sources.
The struggle between American Airlines (NYSE:AMR) and Delta Airlines over JAL is expected to further intensify.
