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JAL looks to Delta and banks for cash infusions

Date Posted: 2009-09-24

Cash-strapped Japan Air Lines is pulling out all the stops to come up with billions of yen to restructure operations, including working a plan to get upwards of ¥50 billion from rival Delta Airlines.

Japan Airlines Corp., now in government-supervised restructuring, is expected to slash more than 1,000 jobs—many through an early retirement program starting late in the Fall—while turning to various banks and other financial institutions for help to the tune of more than ¥170 billion. JAL officials say they’re not ruling out anything that could improve the company’s financial posture, including spinning off the subsidiary that operates its international flights, reducing flights and eliminating more routes.

The airline is to provide its plan to the Ministry of Land, Infrastructure, Transport and Tourism. JAL has already announced plans to cut 10% of its work force, 5,000 jobs, over a three-year period.

Japan Air Lines, a member of the Oneworld airline alliance that includes AMR Corp., parent company to American Airlines, is looking for more help than even Oneworld can provide. JAL is continuing to press Oneworld for more international route code-sharing, and AMR for investment funding, but is going beyond that.

JAL has pitched a proposal to America’s Delta Airlines, which is now in final stages of an absorption merger with Northwest Airlines, looking for cash and perhaps more. Delta is eying the idea closely, seeing an opportunity for it to both buy a chunk of JAL and expand its presence in Japan. Delta, the world’s largest airline, is said to be eager to get much coveted access to Tokyo’s Haneda Airport. The Ministry of Land, Infrastructure, Transport and Tourism has already asked JAL to accept the Delta investment, along with code-sharing on flights connecting Japan and the U.S.

Neither Sky Team Alliance, which represents Delta, or Oneworld, is saying much about the talks. Delta and Sky Team have no Japanese partners, but there’s no explanation yet as to what impact a lash up between Delta and Japan Air Lines would have on JAL’s relationship with AMR and Oneworld. Delta’s acquisition of Northwest Airlines has given it a foothold at Narita International Airport, but its market share is minimal compared to the Japanese carriers. Delta has not been granted landing rights at Haneda, the domestic airport on the outskirts of Tokyo.

Delta is considered cash-flush, with $4.9 billion in cash, cash equivalents and short-term investments, and another $500 million possible through lines of credit. Delta’s total unrestricted liquidity is $5.4 billion, although airline officials say that number will fall to $5 billion by the end of this month.

JAL is also looking for investment from the Europe-based Air France~KLM Group, hoping for a few billion yen. It is also looking to travel agencies and investment funds for investments.

The airline has already announced plans to cut or suspend flights on 10 international routes, while reducing flights on another six routes. It says plans are under way to suspend flights linking Tokyo and Osaka with China, while suspending or transferring JALways flights from Tokyo to Milan, Italy and to Mexico City.


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