Raw Japan

Slices of Japanese business, politics and life

Highway to the stranger zone

September 14, 2009

Not so long ago, once proud Japan Airlines had few friends besides the government, which threw it a $1.1 billion bone in the form of emergency support in June to keep the national flag carrier in the pink, if not the black, as Asia’s largest airline by revenues continued to bleed money — about $1 billion in the last quarter — and painfully restructure.

But in a weekend, JAL has suddenly become the belle of the Pacific ball, with both Delta and American Airlines possibly looking at minor stake acquisitions worth hundreds of millions of dollars, and public broadcaster NHK reporting that it is also eyeing a capital injection from Air France-KLM, all likely dictated by a state-supervised restructuring plan due by month’s that may carry another plea for government aid.

Delta, in the competing “Skyteam” alliance, would reportedly inject up to $550 million and would want international code-sharing, while a pact with “Oneworld” alliance peer AA would be a minority stake for revenue-sharing and other business ties, dependent on U.S.-Japan “open skies” talks.

Potential carrier ties almost certainly could not involve all, while no direct links have so far mentioned Japan’s No.2, All Nippon Airways, although tabloid reports when JAL last landed on this blog tarmac in January predicted a possible merger.  The industry may lose $9 billion this year and JAL a sizable chunk, but apparently things are not quite bad enough to put the two in the same hangar just yet.

An equity sales push would not be limited to airlines, as JAL reportedly plans to ask aircraft makers, trading houses, investment funds and the government to buy its stock. Japanese law prohibits over one-third foreign ownership of JAL, but there has never been a threat to push that envelope, with international shareholding under 5 percent now. Shares were down 14 percent since the last state-backed support in June, but the news about new possible dance partners gave it new loft on Monday.

A friend who used to work for JAL for decades put part of its conundrum in this light:

The transport ministry, which wants the restructuring report as a sign that past and future government aid is well spent — or at least better spent – also built and oversees many of the 60 domestic airports that JAL is expected to serve, in some cases where air traffic is superfluous to existing rail stations or other airports and often a guaranteed loss-maker.

JAL must cut capacity and more jobs, but potentially could upset the backers of some of the domestic white elephants as well its own unions, weighing on future aid and cooperation. Increasing international ties and ownership — to a point  — would offer JAL greater options, particularly if the price to get off the ground and out of its current turbulence is not too great.

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