American and Delta up the ante for JAL

US carriers American Airlines and Delta Air Lines continue to battle for a stake in oneworld's Japan Airlines in order to sustain and enlarge their foothold in the key Asia Pacific market.

After keeping silent for weeks over reports is was seeking a stake in the struggling carrier, Delta and unnamed SkyTeam members have formally tabled a $1 billion packagethat entails revenue guarantees, asset backed financing and a capital investment that carries no voting rights in JAL.

The SkyTeam partners are offering a $500 million capital investment, while Delta is offering a $200 million asset-backed investment. Italso includes a $300 million short-term guarantee by Delta to JAL related to risk of lost revenue from transitioning from oneworldto the SkyTeam group. Delta has also guaranteeda pledge of $20 million in transition costs if it accepts the offer and moves to SkyTeam.

JAL's jump to SkyTeam would create a strategic gap for oneworld in Asia, and American has been vocal in its argument that such a move would be costly and cumbersome."I think that JAL and its stakeholders recognise that an alliance switch would be burdened by excessive financial and regulatory execution risks during the critical initial phase of its restructuring," says Americanchief executive Gerard Arpey.

American is teaming up with private equity firm TPG to supply a rival offer for JAL. American argues a switch by JAL from oneworld to SkyTeam would result in $500 million in lost revenue for JAL over the first two years of the transition, which it believes is "a costly distraction"when the future of JALis at risk. American also believes it should gain swift regulatory approval of antitrust immunity with JAL once Japan and the US reach an open skies accord. It estimates an immunised relationship between the two would generate an additional $100 million in annual revenue for JAL. American and TPG say they offer JAL a strong capital base and "an ability and willingness to make a substantial investment to assist in JAL's recovery".

Ultimately JAL's fate as a member of oneworld or SkyTeam rests with its management and Japan's government.Transport minister Seiji Maehararecently commented a court-led bankruptcy of JAL is not impossible.

Source: Airline Business