DealZone

from Commentaries:

Consolidation Air, nobody’s favourite airline

JAL/With airlines around the world struggling to survive the economic downturn, the time should be nearing to break the taboo of consolidation in the sector.

Airlines around the globe face losses of $11 billion in 2009, according to IATA. Margins are expected to fall this year and next, with analysts predicting carriers are likely to struggle for years to reach levels needed to produce an acceptable return for capital market investors.

Societe Generale estimated in a recent note that margins would drop to -3.1 percent in 2010 before recovering to 1 percent in 2011, well short of the 10 percent needed.

Effectively we are back to the ice age of 2001-2.

Eight years ago, the collapse of Sabena and Swissair kicked open the door of cross-border consolidation -- within Europe at least. But while deals like Lufthansa's merger with the Swiss airline allowed for some rationalisation, the merged entities remain hamstrung by national aviation regulations.

Replacing this patchwork of national carriers with viable global companies able to withstand economic shocks is the necessary next step.

Air Traffic Control

AIRFRANCE/JALJapan Airlines announced cuts to its international flight schedule, in line with thousands of layoffs planned over the next year, as it tries to navigate its heavy debt load. But the Japanese national carrier has never been busier with a different kind of traffic.

Air France-KLM has joined the list of would-be suitors, according to a source familiar with the matter. Delta and American Airlines are seen as being in better position to win a stake in JAL — if Japan and the United States can reach an “open skies” agreement.

JAL is Asia’s biggest carrier by revenue, and a deal would help any Western airline gain access to China and other Asian routes via code-sharing agreements. We hear the going price for a minority stake and a code-sharing deal is somewhere in the range of $200 million to $300 million.