American and TPG offer to invest $1.1 billion in JAL

Oneworld member American Airlines and its partner TPG along with unnamed members of the alliance have offered struggling Japan Airlines (JAL) a $1.1 billion investment package to rival financial support recently proffered by Delta Air Lines and members of SkyTeam.

Speaking during a briefing today in Tokyo American CFO Tom Horton argued the offer presented to JAL by American and TPG is superior to the competing offer as he reasons the Delta package is really only commitment of $500 million.

The $300 million short-term revenue guarantees Delta is offering JAL to switch from Oneworld to SkyTeam essentially "bring JAL back to zero", says Horton. "The offer of $200 million in debt financing, which must be repaid, isn't incremental value and in fact adds debt to a company that is already overburdened with debt."

Horton reiterated previous contentions by American that JAL would lose $500 million in revenue during the first two years if the carrier opts to abandon Oneworld for SkyTeam.

Factoring in $700 million in revenue JAL could garner over 10 years if American and JAL gain approval for antitrust immunity, Horton says the total incremental financial support from AA, oneworld and TPG is in excess of $1.8 billion.

Negotiators from Japan and the US are holding talks this month in Washington, DC, and Horton today expressed confidence the two parties would achieve an open skies agreement. Once that happens American and JAL can begin the process of seeking approval for immunity from US regulators. Horton warns that Star Alliance members United and Japan's All Nippon Airways (ANA) "will apply for and achieve antitrust immunity" once the open skies agreement is concluded.

He contends US regulators would not grant antitrust approval to JAL and Delta, leaving JAL weakened against "a very powerful combination of United and ANA".

Currently the three global alliances have about one-third market share from the US to Japan, says Horton, but if Delta is successful in its bid for JAL, SkyTeam's share would jump to 62%, resulting in SkyTeam and Star having a 93% market duopoly. He characterises that as "an anticompetitive result that the US government will not allow".

Horton says it is premature to describe how American, TPG and other Oneworld members are splitting the investment. But he emphasises American is prepared to make a substantial investment as part of the support the parties are offering to JAL.

Responding to a query regarding the level of support remaining the same if JAL enters into bankruptcy, Horton says the scenario envisioned by American and TPG is a plan by the government to restore JAL to financial health.

Horton also says he cannot supply a definitive time period of when the government and JAL will select either offer, but he warns time is of the essence as open skies talks progress and United and ANA prepare to apply for antitrust.

He explains American and JAL need to get their own antitrust proposals underway while JAL proceeds with the balance of its restructuring plan.

Source: Air Transport Intelligence news