Airlines circle as Japan’s flag carrier begs for state bailout

Author: By Sarah Arnott

JAL’s chief executive, Haruka Nishimatsu, met Seiji Maehara, the Transport Minister in Japan’s newly elected Democratic Party government, to beg for capital in the face of predicted losses of ¥63bn (£430m) for the year to March. The only immediate response from the Tokyo government yesterday was that it is not considering JAL’s bankruptcy.

With hubs at Tokyo’s two international airports and routes throughout Asia, the carrier’s fate has far-reaching implications. A string of big names ? including British Airways (BA), Air France-KLM, Delta and American Airlines (AA) ? have been linked to rescue proposals.

The subtext is the intense competition between the airline alliances. JAL is a member of Oneworld, while the front-runner in rescue discussions is Delta, from rival SkyTeam. But a consortium of Oneworld members, BA, AA and Qantas, is understood to have put forward a proposal of its own, in a bid to keep JAL for itself.

Yet another dimension is the on-going talks between the US and Japan over an open skies treaty to deregulate flights between the two countries, which will in turn open up the wider Asian market.

Under current arrangements, only Delta and United can fly from the US to Tokyo. An open skies treaty would increase access to take-off and landing slots in Tokyo, adding to competitive pressure on both JAL itself and the favoured US carriers.

If AA were successful in expanding in Tokyo, there would be a knock-on effect for BA, assuming the two airlines’ plans for even closer links are signed off by the US regulator.

Industry sources say Delta’s move on JAL might even be an attempt to push the Japanese to keep control of JAL and pull back from open skies. “The cynics say that the JAL fracas is spoiler,” one insider said. “In protecting JAL they would also be inadvertently protecting Delta’s position in the Japanese market.”

The next round of talks on open skies will be in Tokyo in late October, with a view to negotiations being completed by the end of the year.

In an attempt to bring down its costs, JAL is planning to cut 6,800 jobs ? or 14 per cent of the workforce ? by the end of 2011.

It is also axing 50 international and domestic routes, including some between Tokyo and Rome and Amsterdam ? which some industry watchers have taken as a sign that it is expecting closer links with another international carrier.

Global alliances: Who has teamed up with whom?

* The Oneworld alliance has 10 members including British Airways, American Airlines, Cathay Pacific, Qantas and Iberia. JAL ? whose chief executive, Haruka Nishimatsu is asking for government money ? is also a member.

* SkyTeam has 11 members, including Air France-KLM, Delta, Continental and Alitalia.

* Star Alliance is the largest group, with 24 members, including Air Canada, Air China, Lufthansa (which includes recent mergers with Austrian, Swiss and BMI), Singapore and United.

* Next month will see the first shift from one alliance to another when Continental leaves SkyTeam to join Star Alliance. The takeover of Northwest by Delta last year liberated Continental from a golden-share arrangement under which Northwest could block Continental’s choice of alliance. Star Alliance is a better fit, says Continental.

* Mexicana will join Oneworld in November.

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