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American Airlines has stepped up its bidding war with Delta Airlines for a controlling stake in Japan Airlines by offering a US$1.1bn sweetener. Much of the injection is being fronted by TPG, a private equity group. Meanwhile Delta and its SkyTeam alliance partners are trying to lure JAL away from oneworld by offering US$500m in new equity, plus another US$500m in asset-backed financing and compensation.
Both American Airlines and Delta are keen to forge a stronger foothold in the Far East, with a new open skies deal between the US and Japan expected to be signed next year. JAL’s services across the Far East, especially China, would be a major feather in the cap for either airline. However they have a number of obstacles. Firstly JAL racked up record losses of Y130bn ($1.5bn) in the six months to September and has one of the biggest debts within the aviation industry.
They would also have to win the approval of the Japanese government, which is currently trying to turn around JAL’s fortunes through its Enterprise Turnaround Initiative Corporation (ETIC). This is able to tap up to 1.6 trillion yen in state-guaranteed funds until next March, but it remains to be seen how much JAL may be given.
Seiji Maehara, Japan’s transport minister, has hinted that JAL could be allowed to file for bankruptcy if the ETIC’s restructuring efforts failed. He said: “I never said we would not allow a bankruptcy. I meant that we would not allow JAL to go out of business and disappear.” The ETIC’s effort is seen as an alternative to bankruptcy. If the body determines that it cannot win necessary concessions from JAL stakeholders, however, it could recommend court intervention.
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