American, partners boost JAL support offer

[February 04, 2010]  TOKYO (AP) -- American Airlines escalated the bidding war for Japan Airlines to keep it from defecting to rival Delta's alliance, even as the money-losing Japanese carrier moved closer to bankruptcy.

American, along with key airline partners, said Tuesday they are prepared to inject $1.4 billion cash into Japan's flagship carrier, up from the previous offer of $1.1 billion. In addition, they will guarantee $2 billion in revenue over the next three years if Japan Airlines, or JAL, stays in the oneworld family.

"This proposal demonstrates oneworld's extraordinary commitment to JAL," said Tom Horton, American's chief financial officer. "It brings stability and certainty to Japan Airlines at a time when it is most needed, as it faces turbulent times over the coming weeks and months."

The announcement came as the Japanese government finalizes details of a turnaround plan for JAL, which is deeply in debt and suffering heavy losses. The plan will likely include a bankruptcy filing, cutting about a third of its work force and canceling almost $4 billion in debt, according to media reports.

Transport minister Seiji Maehara met Tuesday with JAL's major creditor banks, including the Bank of Tokyo-Mitsubishi UFJ Ltd. and Sumitomo Mitsui Banking Corp., and said they intend to cooperate with the rehabilitation plan being hammered out by a state-backed corporate turnaround body.

He said the government is committed to keeping JAL flying as it restructures.

Meanwhile, JAL said it managed to convince more than two-thirds of its retirees to agree to major cuts in pension benefits, clearing a critical roadblock in qualifying for public aid.

The day's developments convinced investors to unload JAL shares amid fears that the plan involves removing the issue from the Tokyo Stock Exchange. Prime Minister Yukio Hatoyama suggested Tuesday that delisting may be inevitable during restructuring, saying "shareholders have a certain responsibility."

JAL shares plunged 45 percent Tuesday -- the maximum decline allowed -- or 30 yen from Friday's close to 37 yen. Japan's financial markets were closed Monday for a public holiday. In the morning, trading in JAL shares was paralyzed due to a glut of sell orders.

But JAL is still Asia's biggest airline and its access to the region is a prized asset for other airlines. Executives from oneworld alliance members American, British Airways, Qantas Airways, and Cathay Pacific Airways told reporters at a press conference Tuesday in Tokyo that their plan would help the Japanese carrier through its recovery.

Rival Delta Air Lines and its SkyTeam partners have offered $1 billion, including $500 million in cash. However, a government turnaround body is set to decline all cash offers, as it fears giving foreign carriers a stake in JAL would complicate the restructuring, according to media reports.

"While JAL and the Japanese government might decide to address capital requirements internally -- and we certainly would understand and respect that -- our offer of capital would be available if this was deemed an appropriate resource to aid in the restructuring of JAL," Horton said.

If the government taps the American group for cash, private equity firm TPG will commit as much as $1.1 billion with the rest coming from oneworld.

The $2 billion three-year revenue guarantee includes $1.5 billion in ongoing revenue from JAL's participation in oneworld and $300 million if JAL and American secure trans-Pacific antitrust immunity. JAL's partnership with British Airways will add $200 million in new revenue, according to American.

British Airways is offering to expand cooperation on flights between Japan and Europe. It will also support JAL's efforts to establish new services between London's Heathrow Airport and Tokyo's Haneda Airport, which is scheduled to open a new runway and international terminal this year.

The airline will also slash about 15,600 jobs -- 33 percent of its group work force -- under a restructuring plan being hammered out by a state-backed corporate turnaround body, Kyodo News agency has said.

The Enterprise Turnaround Initiative Corp. of Japan, which is responsible for JAL's restructuring, will ask banks to forgive 350 billion yen ($3.8 billion) of debt owed by the airline, the Nikkei said over the weekend.

[Associated Press; By TOMOKO A. HOSAKA]

AP writers Jay Alabaster and Shino Yuasa contributed to this story.

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