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ShareTOKYO: Japan's transport minister declined to rule out a court-led bankruptcy for Japan Airlines (JAL), sending the struggling carrier's stock to a record low, even as US carriers lined up with offers of financial support.
Delta Airlines said it and its partners in the SkyTeam alliance were ready to offer $1 billion in total aid, including a $500 million equity investment, in return for defecting from the Oneworld alliance and its partnership with American Airlines.
The offer follows news last week that private equity firm TPG was considering partnering with American Airlines on an investment in JAL. The Nikkei newspaper said on Wednesday that investment could be as big 100 billion yen ($1.1 billion).
Delta and American have been courting JAL for the past few months, eager to gain access to its network to fast-growing Asian markets and a stronger foothold in Japan.
But those talks have been overshadowed by the much larger issues facing JAL, which is seeking a state bailout to avoid bankruptcy and by one estimate needs 300 billion yen in fresh capital, or six times the offer from SkyTeam.
JAL's stock closed down 3.9% at 98 yen after touching 94 yen, its lowest since relisting in 2002. Investors sold on comments by transport minister Seiji Maehara they interpreted as a change to prior assertions the state should not let JAL fail.
"I have never said a court-led bankruptcy is impossible," Maehara told parliament, explaining that previously he had meant to rule out a liquidation and not a court-led restructuring, which could also render the airline's shares worthless.
JAL, headed for its fourth loss in five years, has applied for assistance from a government-backed fund that is expected to take until January to study its assets and decide whether it is worthy of an injection of public funds.
Delta and American have both pushed their proposals as the best solution for JAL. Delta emphasises its size, which it says would bring more passengers to JAL's network, while American has highlighted the risks of leaving Oneworld and of regulatory hurdles.
"The best scenario for JAL is to rebuild itself with help from the government and foreign airlines," said Kotaro Toriumi, an airline analyst and teacher at the Faculty of Tourism at Josai International University. "But making a fresh start after a court-led bankruptcy could be an option too."
In addition to $500 million in capital from SkyTeam members, Delta said it would offer $300 million in guarantees on any short-term revenue loss from switching alliances and $200 million in asset-backed financing.
Delta president Edward Bastian told a briefing in Tokyo that JAL could gain $400 million in annual revenue by joining hands with Delta given that it carries several times the number of passengers from the United States to Japan.
American Airlines has estimated JAL would lose $500 million in revenues over a two-year transition period if it left Oneworld but stood to gain $100 million in annual sales if they formed a venture to cooperate more closely on scheduling and marketing.
Such close cooperation is contingent upon the implementation of an "open skies" treaty to liberalise travel between the United States and Japan. The two governments are in negotiations and hope to finalise a deal by the end of this year.
"Improvements to costs and the balance sheet alone won't provide the kind of long-term stability that JAL needs to thrive out into the future. It must have top-line revenue growth as it restructures," Bastian said.
American has touted TPG as the ideal partner to invest in JAL, given its experience with airlines, including helping fund Continental Airlines' emergence from bankruptcy in 1993.
American has also argued that JAL and Delta would have difficulty clearing regulatory hurdles if they sought antitrust immunity under an open skies agreement, as it would give SkyTeam control of the bulk of air traffic between the United States and Japan.
The Nikkei said TPG would be willing to buy up to 100 billion yen worth of common and preferred shares from JAL.
A source familiar with TPG's thinking told Reuters after the Nikkei report that the private equity firm was still in the early stages of exploring a possible investment in JAL, and no decisions on the amount or other details had been made.
It was also unclear if TPG would be able to make such an investment.
JAL has a market value of about $3 billion, and under current laws the total stake of non-Japanese persons or entities in an airline is capped at one-third in terms of voting rights.
