American/TPG top Delta's JAL offer with $1.1 billion bid

American Airlines is partnering with TPG Capital to offer to invest $1.1 billion in Japan Airlines to assist with the ailing carrier's restructuring and ensure it remains in the oneworld fold.

AA CFO and Executive VP-Finance and Planning Tom Horton, speaking to reporters on a conference call from Tokyo, insisted that the AA/TPG proposal is "far superior" to the $1 billion package Delta Air Lines offered JAL to induce it to switch to SkyTeam (ATWOnline, Nov. 19). He added that the value of the AA/TPG deal could increase by as much as $700 million over 10 years "if JAL builds its links" with AA. He stated, "The total incremental financial support from the American, oneworld and TPG proposal is in excess of $1.8 billion and far exceeds any other available proposition."

He further claimed that oneworld "provides JAL with roughly $500 million in annual revenue" and claimed that JAL would lose $500 million in the first two years following a switch to SkyTeam.

However, Horton declined to detail the financial structure of the proposed offer or the share each of the partners would contribute, though he did say AA's contribution would be substantial. He also reiterated AA's claim that a DL/JAL tie-up would pose antitrust concerns owing to DL subsidiary Northwest Airlines' strong position at Tokyo Narita (ATWOnline, Nov. 10). Horton said that currently, the three major alliances each have about a third of the US-Japan market. However, with JAL in SkyTeam "that balance is shattered. SkyTeam's share will jump to 62% and SkyTeam and Star will have a duopoly with 93% of the market, an anticompetitive result that the US government simply will not allow."

Former US Transportation Secretary Norman Mineta is acting as a consultant to AA on its JAL bid and joined Horton for the briefing in Tokyo. "There is no precedent for the Department of Transportation to immunize two airlines that operate connecting hubs in the same market, which is the case with Delta-Northwest and Japan Airlines," Mineta said. DL President Ed Bastian told reporters yesterday he is confident that a DL/SkyTeam investment in JAL would be cleared by antitrust regulators.

Horton stated that AA would apply to form an antitrust-immunized transpacific joint venture with JAL, which he said will be permissible under the US-Japan open skies accord expected to be finalized imminently. Additionally, oneworld members British Airways and Finnair said they would codeshare "far more widely" with JAL, while LAN Airlines and Mexicana also pledged greater cooperation to increase JAL's access to Latin America.

JAL President Haruka Nishimatsu has said he would like to choose between the AA and DL offers by year end. The carrier is attempting to enter into a government-backed restructuring and last week secured an emergency loan from the Development Bank of Japan (ATWOnline, Nov. 25).