DealZone

Delta’s Japan flight plan

September 11, 2009

Japanese media say Delta is in talks to take a big stake in Japan Airlines. It will spend several hundred million dollars to become JAL’s top shareholder, according to the reports – a purchase befitting the world’s biggest airline?

Delta has spent a chunk of 2009 swallowing Northwest, which it bought last year, and in July said it did not expect to record a profit this year. It is still talking about right-sizing and job-cutting. Meanwhile, JAL is forecasting a loss of 59 billion yen ($649 million) for the year ending next March. Northwest already had a strong presence in Japan – Narita airport was a major hub for its Asian business – so it’s not like Delta is breaking entirely new ground.

While there is a cold, hard logic to taking advantage of a tough economy to pick off competitors, at some point investors will need to be convinced that bigger is better, particularly in an industry like air travel, which depends so heavily on economic tailwinds. It’s hard to imagine what a position in JAL offers Delta that could warrant spending so lavishly at this point in the recovery.

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