Japan Airlines rejects Delta, stays with American

[February 09, 2010]  TOKYO (AP) -- Japan Airlines, wooed for months by Delta Air Lines with promises of cash and a broad global network, spurned the world's biggest carrier and opted to keep its alliance with American Airlines.

The Japanese carrier said Tuesday it will strengthen its partnership with American, and the two airlines will jointly seek antitrust immunity on trans-Pacific routes.

The decision brings to an end a fierce tug-of-war over Japan's ailing flagship carrier, which is restructuring under bankruptcy but offers the U.S. airlines access to lucrative Asian routes.

In an aggressive courtship, Delta and its partners offered JAL $1 billion to leave oneworld. American and its partners said they would give JAL as much as $1.4 billion to stay.

Delta in a statement didn't directly address JAL's choice, instead asserting it remains a big player in Asia.

"With recently announced plans to invest $1 billion in our product, Delta remains committed to providing a leading option for travel across the Pacific," the airline said.

American, based in Fort Worth, Texas, said in a statement it believes JAL made the right choice. It reiterated that American and its oneworld partners plan to deliver to JAL roughly $2 billion in ongoing and incremental revenue over three years. The agreement does not involve a cash injection from American, JAL officials said.

"American and JAL will now focus on building a joint venture that can offer JAL significant revenue growth beyond the stability that oneworld offers today," American said.

Its victory seemed improbable just a few weeks ago when Japanese officials, convinced of the long-term revenue benefits, were pushing JAL toward Delta and its SkyTeam partners. But after taking over last month, new JAL chairman Kazuo Inamori insisted that management would re-evaluate both proposals from scratch.

JAL's loyalties swung back to American in the end as executives decided an alliance switch would do more harm than good during a restructuring that is expected to take three years. The process of shifting partners would have confused customers at a time when JAL needs to focus solely on recovery, it said.

"If we don't surivive the first two years, there will be no future for JAL after the third year of restructuring," Daiji Nagai, senior vice president of corporate planning, told reporters. "We decided that we can minimize risk by staying with American."

Moreover, the regional dominance of a JAL-Delta tie-up would likely raise concerns about unfair competition, complicating any bid to score antitrust immunity. Immunity is seen as the key to a closer revenue-sharing relationship between U.S. and Asian carriers.

The Centre for Asia Pacific Aviation called Tuesday's news a "massive win" for Gerald Arpey, CEO of American's parent company AMR Corp.

"American stood to lose more than Delta, which already has a significant presence at Narita Airport" the Sydney-based aviation research group said in a report.

It expects Delta to strengthen its presence in Tokyo on its own and expand in other Asian markets through its ties with SkyTeam members Korean Air and China Southern Airlines.

In their fight over JAL, American and Delta were vying to keep pace with the Star alliance, which includes United Airlines, Continental Airlines and All Nippon Airways. Star alliance has 31 percent of U.S.-Japan market share.

United, Continental and All Nippon Airways have applied for antitrust immunity so they can form a joint venture and work together more closely on flights across the Pacific. Delta would have submitted its own application if it landed Japan Airlines. But it will be American, part of the oneworld alliance, taking on that task now.

A joint venture allows airlines to share costs and revenue on certain flights regardless of which airline owns or flies the aircraft. It differs from a codesharing agreement where one airline bears all the cost but another airline might get a share of the revenue for booking a customer on a flight.

JAL President Masaru Onishi said the Tokyo-based company analyzed the issue "in great detail."

He said management "firmly believe that the advantages of this development with American Airlines can strongly support JAL at a time when we are striving toward the revival of our business, which we are determined to achieve."

There is no guarantee American and Japan Airlines will be able to get antitrust immunity, either. But JAL in the end wasn't willing to take the risk of moving to Delta.

[Associated Press; By TOMOKO A. HOSAKA and HARRY R. WEBER]

Harry R. Weber reported from Atlanta. AP writer Mari Yamaguchi contributed to this report.

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