Delta, SkyTeam Offer $1 Billion to Japan Airlines

Delta Air Lines and its alliance partners said Wednesday they are making a billion dollar offer to lure loss-making Japan Airlines from its affiliation with American Airlines.

Delta Air Lines' president Edward Bastian smiles as he listens to reporters' questions during a...

Delta Air Lines' president Edward Bastian smiles as he listens to reporters' questions during a press conference in Tokyo, Japan, Wednesday, Nov. 18, 2009. Delta Air Lines and its alliance partners said Wednesday they are making a billion-dollar offer intended to lure loss-making Japan Airlines from its current affiliation with American Airlines. (AP Photo/Junji Kurokawa)

(AP)

Delta is "by far the strongest partner for Japan Airlines," company president Edward Bastian told reporters in Tokyo, escalating the tug-of-war for a minority stake in Japan's flagship carrier.

The offer from Delta and the SkyTeam alliance includes a $500 million capital investment, $300 million in short-term revenue guarantees, and $200 million in asset-backed financing for the airline, known as JAL.

SkyTeam would also cover the entire cost for Japan's flagship carrier to transfer from American's oneworld alliance, estimated by Delta to total $20 million.

The stakes are high for both Delta and American, a unit of AMR Corp., as they seek to expand their international reach through global partnerships. JAL, Asia's biggest airline, is particularly attractive because of its extensive routes in Japan and China.

By partnering with JAL since the mid-1990s, American has been able to sell those routes to its own customers and share in the revenue. American and JAL offer reciprocal frequent-flier privileges to each other's passengers.

But JAL is struggling, and the Tokyo-based airline desperately needs an injection of capital and government help to avoid collapse.

It said last week it booked $1.5 billion in losses for the first half of the current fiscal year and was seeking government assistance in dealing with its creditors. Its interest-bearing debt totals nearly $10 billion.

Hit by a downturn in travel brought on by the tepid global economy and the swine flu outbreak, the company has been approved for a government-run turnaround. It is mulling large job cuts after already lowering its staff mainly through attrition as well as taking other measures such as cutting unprofitable routes.

Japan Airlines spokesman Sze Hunn Yap said the company is aware of Delta's offer but could not comment.