Delta Air Lines Inc. and Air France-KLM may be planning to buy stakes in Japan Airlines Corp., creating a global alliance that would give travelers a single source for booking flights on all three systems.
Delta, the world’s largest carrier, is in discussion to invest at least several hundred million dollars for a stake that would give it access to more cities in Japan, a person familiar with the matter said. Buying a piece of Asia’s biggest airline by sales would be a step toward an alliance for sharing flight bookings, said the person, who asked not to be identified because the discussions aren’t public.
Delta gained overseas routes at Tokyo’s Narita airport after buying Northwest Airlines last year. Alliances enable airlines to expand their networks by pulling in more passengers and sharing revenue at lower costs than using their own jets or merging with another carrier.
A Japan Airlines stake “would increase Delta’s presence in Japan, helping what we already see as the most diversified international route network of any U.S. carrier,” Jim Corridore, a Standard & Poor’s equity analyst in New York, wrote in a note yesterday. He recommends buying Delta shares.
“The report of the tie-up talks is not true,” Satoru Tanaka, a Japan Airlines spokesman, said by telephone. Kent Landers, a spokesman for Atlanta-based Delta, declined to comment.
Delta fell 4 cents to $8.06 at 4 p.m. in New York Stock Exchange composite trading yesterday. The shares have tumbled 30 percent this year. Japan Airlines was unchanged at 163 yen.
Air France
Japan Air is in talks on capital ties with Air France-KLM as well as Delta, the Yomiuri newspaper reported today without saying where it obtained the information. Yomiuri said Delta may invest as much as 50 billion yen ($551 million) and become Japan Air’s biggest shareholder.
Sze Hunn Yap, a spokeswoman at Japan Air, and Air France spokesman Cedric Leurquin both declined to comment on the Yomiuri report.
The Wall Street Journal reported the talks between Delta and Tokyo-based Japan Airlines earlier, following a report by Japanese public broadcaster NHK that the carriers were discussing a capital tie-up.
A Delta-Japan Airlines connection would help the SkyTeam marketing alliance of airlines, which includes Delta and Air France-KLM, because the group lacks a flagship Japanese carrier. Japan Airlines belongs to the Oneworld alliance, whose members include AMR Corp.’s American Airlines and British Airways.
American
Tim Smith, a spokesman for American, declined to comment on a Nikkei English News report that Japan Airlines might ask the Fort Worth, Texas-based carrier for an investment. “JAL is a very good partner both for American and for Oneworld,” he said.
A stake sale and alliance also probably would benefit Japan Airlines, which posted a first-quarter loss of 99 billion yen ($1.09 billion), the most in at least six years, as business and leisure travel plunged in the nation’s worst postwar recession.
Japan’s government set up a panel of legal and academic experts last month to help restructure the carrier after losses in three of the past four years.
“Reports that the two companies are negotiating a tie-up are probably true,” Ryuhei Maeda, director-general of Japan’s Civil Aviation Bureau, said in an interview. “This is one of the ideas I have strongly recommended to Japan Air.”
Winning regulatory approval for an alliance may be “very hard” because Delta and JAL are the biggest carriers in their respective countries, said Andrew Steinberg, a partner in the Washington offices of the Jones Day law firm, who was previously an assistant secretary at the U.S. Department of Transportation.
Open Skies
Delta may also be trying to derail so-called open skies talks between the U.S. and Japan that would ease air-service restrictions, helping competitors such as American, he said.
Regulators probably wouldn’t give conditional approval to a Delta-JAL alliance during open skies negotiations, which would effectively “end up killing” those talks, Steinberg said.
“It’s a ‘tails, I win; heads, I win’ kind of thing,” Steinberg said.
Helane Becker, an analyst at Jesup & Lamont Securities in New York, said Delta would be able to achieve the same benefits from an alliance with Japan Airlines without putting up any cash. Delta ended last quarter with $4.9 billion in cash and cash equivalents, and said $1.5 billion of debt matures in 2010.
“I don’t know why they’d want to use their cash to make an investment in JAL,” said Becker, who has a buy rating on Delta.
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