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November 19, 2009

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SkyTeam dangles US$1b to lure JAL

DELTA Air Lines and its alliance partners said yesterday they are making a billion dollar offer intended to lure loss-making Japan Airlines from its affiliation with American Airlines.

Delta is "by far the strongest partner for Japan Airlines," company President Edward Bastian told reporters in Tokyo.

The offer from Delta and the SkyTeam alliance includes a US$500 million capital investment, US$300 million in short-term revenue guarantees, and US$200 million in asset-backed financing for JAL.

SkyTeam would also cover the entire cost for JAL to transfer from the oneworld alliance, estimated by Delta to total US$20 million.

The airline, Asia's largest, is seen as a valuable partner because of its routes in China and Japan. Bastian said he hopes JAL can serve as the Atlanta-based carrier's "face of Asia."

Seeking state aid

But its business is struggling. The Tokyo airline said last week it booked US$1.5 billion in losses for the first half of the current fiscal year and was seeking government help in dealing with its creditors. Its interest-bearing debt totals nearly US$10 billion.

Hit by a collapse in travel brought on by the tepid global economy and the swine flu outbreak, the company has been approved for a government-run turnaround. It is mulling large job cuts after already shedding its staff mainly through attrition as well as taking other measures such as cutting unprofitable routes.

JAL spokesman Sze Hunn Yap said the company is aware of Delta's offer but could not comment.

Bastian said JAL's ties with the oneworld alliance has hurt the airline, with flights between North America and Japan falling in recent years.

In contrast, joining SkyTeam would offer JAL access to the 3.7 million Delta customers that fly every year from the US to Japan. That represents a more than threefold increase from American's current passenger traffic out of the US and US$400 million in higher annual revenue, Bastian said.

"Continuing its current partnership threatens JAL's long-term international competitiveness," he said. "Only through a partnership with SkyTeam and Delta will JAL have the strength it needs to regain a position of international leadership."


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