Dec. 3 (Bloomberg) -- American Airlines and TPG offered to invest as much as $1.1 billion in Japan Airlines Corp., double the size of a bid led by Delta Air Lines Inc.
The deal would also generate additional benefits worth $700 million to JAL over 10 years, American Chief Financial Officer Tom Horton told reporters in Tokyo today. He didn’t say how the investment would be broken down and declined to comment on possible financial backing from airline partners in Oneworld.
The offer surpasses the $500 million of equity that Delta and SkyTeam carriers offered to buy as part of a $1 billion package that also included loans and sales guarantees. Delta and American, the world’s biggest carriers, are battling over unprofitable JAL as the U.S. and Japan discuss easing restrictions on flights between the two countries.
“There is no reason for JAL to turn to Delta now that American has made a bigger offer,” said Yasuhiro Matsumoto, an analyst in Tokyo at Shinsei Securities Co. “JAL may have to wait until it has gone through its restructuring before the investment. That could take six months to a year.”
JAL spokeswoman Sze Hunn Yap said no decision has been made on whether to stay with American and declined to comment on the package. TPG spokesman Kozo Iino confirmed that the company is prepared to invest in JAL.
U.S. and Japanese officials will resume talks next week on an “open skies” agreement. Delta anticipates an accord being reached in the coming weeks, President Edward Bastian said today at a separate briefing in Tokyo.
Antitrust Immunity
AMR Corp.’s American said that a Delta-JAL alliance would be unlikely to win regulatory approval as it would give SkyTeam carriers a 62 percent share on U.S.-Japan routes. At present, Oneworld, SkyTeam and Star Alliance each have about a third of the market, it said.
“With JAL in SkyTeam, that balance is shattered,” Horton said.
Jeff Shane, a lawyer advising Delta, earlier said at the carrier’s briefing that there was “no question that JAL and Delta would satisfy the requirements” for antitrust immunity.
Star Alliance member All Nippon Airways Co. has said that it will likely seek a similar agreement with partners Continental Airlines Inc. and UAL Corp.’s United Air Lines Inc.
SkyTeam Offer
SkyTeam’s JAL offer, made public on Nov. 18, included a $500 million investment from the group’s airlines. Delta would put up $200 million in financing and $300 million to cover lost sales. Delta would also support a third party joining the investment, Bastian said today.
“We believe SkyTeam is the strongest possible partner for JAL,” he said.
JAL closed unchanged at 92 yen in Tokyo trading today. It has plummeted 57 percent this year, the biggest decliner on the Nikkei 225 Stock Average.
JAL is seeking new investment and government support as it tries to stave off collapse. The carrier has said it needed to borrow $1.4 billion by the end of March to survive. It reached a loan agreement Nov. 24 for an undisclosed sum from the state- owned Development Bank of Japan.
The carrier now gets as much as $500 million in annual revenue from its Oneworld partners, American reiterated. Alliance carriers including British Airways Plc have offered to boost cooperation with JAL to keep it in the group, Oneworld said today.
American-JAL
American’s current accord with JAL allows joint bookings and revenue sharing on select flights. American’s two-letter airline code is on JAL flights from Tokyo to five U.S. cities and 15 Pacific destinations, and from Osaka to Honolulu. JAL’s code is on American flights between four U.S. cities and Tokyo.
“It would be a big problem for American if they lost JAL,” said Haruo Ushiba, chief analyst at Japan Aviation Management Research. “Their own network across the Pacific is very small.”
AMR has shored up its balance sheet by about $5 billion since September with steps including the sale of frequent-flier miles to credit-card partner Citigroup Inc. for $1 billion and $1.9 billion in jet financing and a loan from a General Electric Co. unit.
TPG, the firm founded by David Bonderman, would seek an equity stake in JAL in exchange for a cash infusion, a person familiar with the talks has said. The Fort Worth-based firm needs approval from Japan’s government and JAL to study the carrier’s financial records and join in the restructuring.
Bonderman would bring experience in working with troubled carriers, including helping return then-bankrupt Continental to profit in the early 1990s.
Last Updated: December 3, 2009 03:02 EST
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10:57PM 02DEC09
TOKYO (Reuters) - Delta Air Lines said on Thursday that teaming up with a third party to support struggling Japan Airlines Corp, which is seeking a state bailout, was one option.
Delta Airlines President Edward Bastian also told reporters in Tokyo that Delta and its SkyTeam partners would be happy to offer more than the previously announced $1 billion of financial support for JAL by teaming up with a third-party investor such as a private equity fund or venture capital firm.
"We are putting our capital at risk, not someone else's capital ... I think that's important. However, if the (Japanese) government asks us to go back and raise more capital, we are happy to do so," Bastian told Reuters on the sidelines of the news conference.
Bastian said, however, that the airline has not received such a request at this moment.
Delta said on November 18 that SkyTeam member carriers were ready to offer $1 billion, including a $500 million equity investment, in return for JAL defecting from the Oneworld alliance and its partnership with American Airlines.