JAL To Stay With American In Blow To Delta

Japan Airlines Corp said it would keep its partnership with American Airlines in the Oneworld alliance, ending Delta Air Lines' attempt to entice the bankrupt carrier to its rival SkyTeam group.

JAL, Asia's largest carrier by revenues, said it would file with American Airlines for regulatory approval for closer cooperation on transpacific routes under a recently signed "open skies" treaty between the United States and Japan.

The decision is a major blow to Delta, which had been courting the Japanese carrier with an offer of $1 billion in financial aid, eager to gain access to its vast network in Asia and benefit from the expansion at Tokyo's Haneda Airport.

"We have analyzed this issue in great detail, and we are excited at the prospects in terms of the convenience and benefits for our customers," Masaru Onishi, who took over as JAL's president this month, said in a statement.

"We also firmly believe that the advantages of this development with American Airlines can strongly support JAL at a time when we are striving towards the revival of our business."

Prior to its filing for bankruptcy protection last month, JAL was leaning towards Delta, attracted by the potential for cost cuts and revenue growth offered by Delta's larger route network, especially in Asia, sources had said.

But JAL's new management and a state-backed fund supporting the carrier decided that switching alliances would be too risky and could hinder the fund's plans to exit its investment in three years, a source familiar with the matter said.

JAL joined the Oneworld alliance in 2007. Oneworld is one of three major alliances which pool frequent flyer miles and ferry passengers between partner airlines. Switching alliances would have required JAL to change computer systems and would likely have caused it to lose revenues during a transition period.

Still, one analyst said Delta would have been the better choice.

"There's no question that Delta would offer JAL more long-term benefits. But JAL's new management probably saw more value in stabilising the company's business from a short-term perspective," said airline analyst Kotaro Toriumi, who also teaches at Josai International University.

"Staying with American will not change anything for JAL."

Fewer Risks
Desperate to keep JAL from defecting to Skyteam, executives from other Oneworld group carriers such as British Airways, Cathay Pacific Airways and Qantas Airways had also backed the effort to keep JAL.

American and its Oneworld partners had offered $1.4 billion in capital in a consortium with private equity firm TPG.

That money will not likely be needed as the state-backed fund, the Enterprise Turnaround Initiative Corp of Japan (ETIC), is planning to put 300 billion yen in fresh capital into JAL and has indicated it would not invite outside investors.

JAL said that it and American would apply to regulators in the US and Japan for anti-trust immunity, and upon approval form a joint venture to work closely on flight scheduling and in other areas, with the aim of boosting revenue and lower costs.

American Airlines had argued that US regulators would not have approved immunity for a Delta and JAL relationship as they alone would have controlled more than 60 per cent of the US-Japan market, stifling competition.