American Air Said to Consider Buying Stake in Japan Airlines

American Air Said to Consider Buying Stake in Japan Airlines
By Chris Cooper
Copyright by Bloomberg News
September 14, 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ_w0zlYHNAk


Sept. 14 (Bloomberg) -- American Airlines, the world’s second-largest carrier, may buy equity in Japan Airlines Corp. to prop up an ally that forecasts its fourth loss in five years, people familiar with the plan said.

American also plans to expand code-sharing with Japan Air, its partner in the Oneworld marketing alliance, the people said yesterday, asking not to be identified because the discussions aren’t public. Japan Air is talking with other carriers to strengthen its business, spokeswoman Sze Hunn Yap said in Tokyo, declining to comment on discussions or possible investments.

Japan Air, which has received three government bailouts since 2001, the most recent in June, is also in talks on possible stake sales to Delta Air Lines Inc. and Air France-KLM, people familiar with those negotiations have said. The carrier, known as JAL, may be seeking 250 billion yen ($2.8 billion) to rebuild operations, the Nikkei newspaper reported yesterday without saying where it got the information.

“I don’t think the Japanese government cares who gives JAL the money,” said Yasuhiro Matsumoto, an analyst in Tokyo at Shinsei Securities Co. “JAL would probably rather get money from American since they’re in the same group,”

American declined to comment on reports of an investment in Japan Airlines, Charley Wilson, a spokesman at the airline’s Ft. Worth, Texas, offices said yesterday. Tokyo-based Japan Air said in a statement yesterday that it wasn’t the source of the Nikkei report and that nothing has been decided on financing.

Alliance Benefits

Code-sharing with Asia’s largest carrier would give American or Delta access to more cities in Japan and the ability to sell seats on Japan Air flights directly to customers. Alliances such as Oneworld and SkyTeam, which includes Delta and Air France-KLM, let airlines expand their networks by pulling in more passengers and sharing revenue at lower costs.

Rival All Nippon Airways Co., forecasting a profit this fiscal year, is in the Star Alliance group along with UAL Corp.’s United Airlines and Deutsche Lufthansa AG.

American, a unit of AMR Corp., has been talking with Japan Air for more than a month on a “far-reaching” joint venture, the Wall Street Journal reported yesterday.

Japan Air posted a 99 billion yen loss in the first quarter, the most in at least six years, as business and leisure travel plummeted during the country’s worst postwar recession.

The carrier, privatized by the government in 1987, had a 25 percent drop in overseas passengers in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003. It gets more than half its airline business from international travel.

Government Panel

The government set up a panel of legal and academic experts last month to help restructure JAL. The incoming Democratic Party of Japan, which takes power Sept. 16, has pledged to cut what incoming Prime Minister Yukio Hatoyama called “wasteful” government spending.

JAL, which predicts a loss of 63 billion yen for the full year ending March, received a 100 billion yen loan from the state-owned Development Bank of Japan and other local lenders in June. The carrier is the worst performing stock in the Bloomberg Asia Pacific Airlines Index with a 23 percent decline this year, compared with a 24 percent advance for the index.

American Air could invest about 50 billion yen in JAL, Shinsei’s Matsumoto said.

“Japanese banks may be convinced to give JAL more money if it receives capital from another airline,” he said. “If an airline is willing to put substantial funds into JAL that means it’s more likely to survive.”

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net