AP source: Delta considers ties to Japan Airlines

[September 12, 2009]  ATLANTA, Ga. (AP) -- Delta Air Lines Inc. is considering making a cash infusion of a couple hundred million dollars to aid struggling Japan Airlines Corp., a person briefed on the talks said Friday.

In exchange for the infusion, the person said the world's biggest airline operator could get a stake in Japan Airlines, an expanded presence in Japan and coveted access to the closest airport to the Tokyo business center.

The talks between the two carriers were in their preliminary stage, and it was unclear what form a partnership between Delta and Japan Airlines might take, said the person, who asked not to be identified by name because of the sensitivity of the discussions.

"There's definite interest on both sides," the person said.

Delta subsidiary Northwest Airlines has a history with Japan Airlines, having handled flight operations for the Japanese carrier in the early 1950s, according to JAL's Web site.

A Delta spokesman declined to comment. JAL spokesman Satoru Tanaka said the airline was considering various tie-ups with a wide variety of potential partners but nothing had been decided.

Japan Airlines already has a codeshare agreement with American Airlines as part of its participation in the oneworld alliance. Delta's SkyTeam alliance currently doesn't have a Japanese partner. An American spokesman declined to speculate on how a Delta-Japan Airlines deal might impact American's relationship with Japan Airlines.

"We would not routinely comment on the media rumors and speculation involving one of our oneworld partners," American spokesman Tim Smith said. "We obviously would note that JAL has been a very good partner for both American and oneworld."

Among U.S. carriers, Atlanta-based Delta has a relatively large Japan presence by virtue of its acquisition last year of Northwest, but its market share there is still dwarfed by that of Japanese carriers. In the Tokyo market, Delta operates from Narita Airport, the main international airport.

Delta has not been allowed to serve Haneda Airport, a mostly domestic airport that is much closer to the center of Tokyo. The U.S. and Japanese governments have been in talks about air service between the countries, though it is unclear how those talks will turn out.

A key benefit for Japan Airlines, Asia's biggest airline group, to a deal with Delta would be money.

Hit by plummeting demand in a slumping global economy and swine flu fears, JAL incurred its biggest-ever quarterly net loss of 99 billion yen ($1 billion) in the three months to June.

The airline has forecast a net loss of 63 billion yen for the current fiscal year to March 2010. As part of restructuring, JAL plans to cut the number of flights and slash costs by 53 billion yen during the current fiscal year and another 100 billion yen in the next fiscal year.

Another motivation for Japan Airlines in talking to Delta about a tie-up could be Northwest's long history of airline operations in Japan. That experience could benefit JAL, said aviation consultant Mark Kiefer of CRA International in Boston.

"I think certainly in terms of the position they are in financially, it's in their interest to entertain really any kind of offers that might come their way," Kiefer said of Japan Airlines. "Whether or not they are also in talks with American, I don't know. It wouldn't surprise me to learn that they were."

American's Smith declined to say whether his airline also was talking to Japan Airlines about making a cash infusion in the carrier.

Kiefer said a hookup with Japan Airlines could be good for Delta.

"In general, you would expect these kinds of investments or arrangements to have some potential upside in being able to generate additional traffic and revenue for both airlines, but Delta in particular," Kiefer said.

Delta has cash to invest, though most major U.S. carriers have been trying to preserve their cash because of big revenue declines due to a steep dropoff in demand for air travel amid the global economic downturn.

As of June 30, Delta had $5.4 billion in unrestricted liquidity, including $4.9 billion in cash, cash equivalents and short-term investments and $500 million available under a line of credit. Delta said previously it expects the total figure to fall to $5 billion by the end of the third quarter, which ends Sept. 30.

Delta shares fell 4 cents to close at $8.06 in trading Friday.

[Associated Press; By HARRY R. WEBER]

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