American Airlines mulls a minority stake in JAL

American Airlines mulls a minority stake in JAL

JAL, Asia’s largest airline by revenues, lost about $1 billion last quarter and has been seeking investors to prop up its finances for a state-supervised overhaul likely to include heavy job cuts, a reduction in routes and asset sales.

American Airlines, a unit of AMR Corp, has held talks with JAL over several weeks on forming a joint venture under which the two would share revenues on flights and offer business customers joint contracts, the source said.

The proposed venture between American and JAL hinges on the enactment of an “open skies” agreement now being discussed by the Japanese and US governments which would allow for close cooperation on flight scheduling and sharing of profit.
“I’m not talking about hugs and kisses. I’m talking about economic value to Japan Airlines,” the source said. “What we’ve been talking about is actually expanding the relationship not just maintaining it.”

Code-sharing agreement

JAL and American have had a code-sharing agreement for a decade and are both members of the Oneworld alliance, which pools frequent flyer incentive schemes. Other members of Oneworld are British Airways and Cathay Pacific Airways.
American is keen to preventing JAL from forming a tie with Delta, which became the world’s largest carrier when it bought Northwest Airlines last year and could use JAL to increase its international footprint. In addition to the size of any capital injection, American Airlines will be pushing JAL executives to consider what they see as more compelling long-term economic benefits of joining hands with American as opposed to Delta.

These include less direct competition in Asia and a relationship that would be on a more equal footing, the source said, adding a senior executive would be in Tokyo this week to continue their discussions with JAL.

Any investment by American or Delta would likely serve as “seed money that helps get other investors motivated,” the source said, indicating other investors would be involved.
JAL also plans to ask aircraft makers, trading houses, investment funds and the Development Bank of Japan to buy shares, the Nikkei said.