JAL may drop American for Delta

Tokyo: Japan Airlines Corp, facing possible bankruptcy this week, may drop partner American Airlines for an accord with Delta Air Lines Inc, according to two people familiar with the situation.

Delta is unlikely to take a stake in JAL and will only pay costs resulting from the switch, said the people who declined to be identified as the talks are private. The US carrier earlier offered JAL $300 million (Dh1.1 billion) in compensation for lost sales as part of a package designed to lure the Tokyo-based airline into its SkyTeam from American's Oneworld.

Atlanta-based Delta has sought a tie-up with JAL to access the carrier's networks in Japan and China. A state-affiliated fund is due to announce a turnaround plan for JAL tomorrow, which will likely include seeking court protection, three people familiar with the matter said earlier this month.

First priority

"Delta should be the first priority for JAL," said Yasuhiro Matsumoto, an analyst in Tokyo at Shinsei Securities Co. "JAL will be able to reduce more unprofitable international routes" through cooperation with Delta than American.

Delta and JAL intend to apply by mid-February for antitrust immunity to cooperate on transpacific routes, pending a final decision by JAL's incoming management, said the two people. JAL posted a 131 billion yen (Dh5.1 billion) first-half loss.

JAL hasn't yet decided between an accord with Delta or American, said spokesman Kojiro Waki. Delta spokeswoman Ryoko Matsumoto said talks with JAL are on-going. She declined to comment further.

American spokeswoman Mary Frances Fagan said suggestions JAL would switch to Delta were "unsubstantiated". The carrier is "eager" to submit a venture plan it has worked on with JAL for some months to the appropriate regulators as soon as possible, she said by e-mail. The plan guarantees JAL $300 million of revenue over the next three years, she said.

Lost sales

Delta and its SkyTeam partners in November proposed a $1 billion package to JAL, including buying a $500 million stake. Delta also offered to cover lost sales and to provide $200 million in financing. American and partner TPG have offered to invest $1.4 billion in JAL.

JAL fell 29 per cent, or 2 yen, to a record low close of 5 yen as of the end of trading in Tokyo yesterday. The stock has tumbled 93 per cent this month. The yield on JAL's 10 billion yen in 2.94 per cent notes due 2013 reached 69.7 per cent on January 15 from 15.6 per cent on December 30, according to Japan Securities Dealers Association prices on Bloomberg. The notes yielded about 9.5 per cent a year ago.

JAL and Delta executives confirmed the plans at a January 15 meeting in Tokyo, the people said. All Nippon Airways Co., Japan's No 2 carrier, has applied for antitrust immunity to cooperate on Japan-US routes with Star Alliance partners, UAL Corp's United Airlines and Continental Airlines Inc.

American has said that Delta and JAL would struggle to win approval to cooperate on US-Japan routes, as their market share would be too large. At present, the market is about equally divided among SkyTeam, Oneworld and Star.

Should JAL choose Delta, they would have 58 per cent of service including flights from beach locations such as Hawaii, Delta has said. American has said its share would shrink to 6 per cent without Japan Air.

Delta flies to 23 cities from Tokyo, including nine year- round in the US, and Asian markets such as Beijing and Shanghai. American and JAL now jointly market flights between Tokyo and five US.cities, plus 15 Pacific destinations.

Delta has said its SkyTeam alliance would provide JAL with 3.2 million passengers a year, compared with the 400,000 the Asian carrier gets now from American.