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10 December 2023

Beleagured JAL mulls future course of action

With $16 billion in debt, JAL's failure would be one of the largest in Japanese history. (AFP)

By Reuters

While Japan Airlines (JAL) heads toward bankruptcy, American Airlines and Delta Air Lines are both courting the carrier with offers of financial aid, aiming to gain routes in fast-growing Asian markets and a stronger foothold in Japan.

Currently a partner of American in the Oneworld airline alliance, JAL is likely to file for bankruptcy today as part of a state-led restructuring. With $16 billion (Dh58.72bn) in debt, JAL's failure would be one of the largest in Japanese history.

JAL joining Delta

It appears increasingly likely that JAL may team up with Delta and the SkyTeam airline alliance. Skyteam transports five times more passengers to and from Japan than Oneworld does, has a strong network in Asia and is generally seen as offering JAL more room to cut costs.

Some transport ministry officials have been backing this option. The Yomiuri newspaper reported over the weekend that Delta and JAL's current management had reached a basic agreement on a deal.

By switching to SkyTeam, JAL would see an annual revenue increase of $400 million, Delta estimates. A JAL-Delta alliance would also control a 43 per cent share of the market between Japan and North America, nearly double that of the JAL-American alliance.

Delta is offering JAL a total aid package of about $1bn including a $500m equity investment, and said it would shoulder all the costs for JAL's defection.

Staying with Oneworld

Desperate to keep JAL from defecting to the rival alliance, American, private equity firm TPG and other Oneworld alliance members have sweetened their aid package to JAL to $1.4bn, $300m above their previous offer. Executives from other Oneworld group carriers such as British Airways, Cathay Pacific Airways and Qantas Airways also stressed their commitment to support JAL, and said staying with the group would provide the fewest risks.

Considering time and costs for JAL to move to the new alliance, some industry analysts have said that remaining with Oneworld makes more sense. "It would take a year or two until JAL realises the benefits of a new tie-up with Delta. Given the timeframe for JAL's restructuring, it's more logical that its stays as a Oneworld member," said Shinsei Securities' senior credit analyst Yasuhiro Matsumoto.

Ally with ANA

JAL could also end all of its international services, allowing rival ANA to take over some of the profitable routes. This idea has some backers in the finance ministry, which is keen to give the Development Bank of Japan what it sees as perhaps the best chance to preserve the value of its loans, sources have said.

A JAL-ANA tie is also seen by some government officials as the best way for Japan's aviation industry to stay competitive.


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