By MITCHELL SCHNURMAN
mschnurman@star-telegram.com
This is not what American Airlines needs right now: to be drawn into a bidding war for a piece of a money-losing airline that’s pleading for a government bailout.
Alas, the only thing worse is losing the target to its biggest competitor.
Japan Airlines, American’s partner in the Oneworld global alliance, has been put in play, with archrival Delta Air Lines serving as the spoiler. Delta wants JAL to leave Oneworld and join its SkyTeam alliance, a move that would leave American with precious few connections in Japan.
Without JAL as a gateway, American may not land the high-paying corporate accounts that demand great access to Asia.
And Oneworld, already third in revenue among the three big alliances, would require a major rebuild.
But even winning JAL is a losing proposition for American. If it prevails, it will spend hundreds of millions of dollars for a minority stake that simply maintains the status quo. American wouldn’t gain management control, new routes or even a guarantee of a joint venture down the road, because that hinges on government approval.
Under normal circumstances, Delta’s overture wouldn’t carry much weight. Switching alliances is expensive and time-consuming, and JAL joined Oneworld in 2007, after years of courtship. Considering the Japanese respect for loyalty and tradition, American has the inside track.
But many are calling for a major shake-up, because JAL has lost money in three of the past four years. Since 2004, cumulative losses top $2.5 billion, and the Japanese government has bailed out JAL three times this decade.
JAL got a $1.1 billion state-backed loan in June and needs more cash now.
Last summer, it sold two divisions and recently pledged to cut 6,800 jobs in a restructuring.
The newly elected leaders in Japan want more drastic measures. Last week, they floated the notion of breaking up the company, a prospect that sent JAL’s stock price to a record low. Company and government officials say they want a resolution by next month.
In many ways, JAL looks like a legacy carrier in the United States: Costs are bloated by pensions and unprofitable routes; cheap competition is encroaching; and it’s been pounded by the economic shocks of 9-11, the severe acute respiratory syndrome outbreak and the current recession.
The trouble is reminiscent of General Motors and Chrysler, and the process that unfolded here. If JAL executives make the call, they’ll lean toward American and Oneworld, in part because JAL would remain a larger enterprise — and a bigger fish in the alliance.
But in news conferences, Japanese trade officials said they preferred a deal with Delta, because it would allow JAL to cut more routes without reducing air travel in the country.
Delta’s Northwest Air unit, acquired last year, has 21 international routes from Narita Airport in Tokyo, while American has four.
JAL could eliminate routes, and passengers could still book with JAL; they’d just use Northwest for more connections.
American Airlines CEO Gerard Arpey recently said that the JAL partnership was producing hundreds of millions of dollars of value. Staying with Oneworld was JAL’s best path forward — "by a wide margin," he said in a call with analysts and reporters.
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