Shares in Japan Airlines jumped 8 percent on Monday on news American Airlines and Delta Airlines are considering rival investments in the struggling carrier to secure partnership ties and boost revenue from Asia.
JAL, Asia's largest airline by revenue, lost about $1 billion last quarter and is under growing pressure to raise money and slash costs after securing a 100 billion yen ($1.1 billion) government-backed credit line earlier this year.
American Airlines, a unit of AMR Corp, is in talks to invest in JAL and form a joint venture, a source with direct knowledge of the talks told Reuters on Sunday.
American Airlines, which like JAL is a member of the Oneworld air alliance, wants to increase its ties and block JAL from switching over to a rival airline network.
Delta, a member of the SkyTeam group along with Air France-KLM, Korean Air and Russia's Aeroflot, has also made an offer to invest in JAL, a source said on Friday.
American will be totally left out if JAL decides to join hands with Delta because ANA is already a Star Alliance member, said Yoshihisa Miyamoto, analyst, Okasan Securities.
All Nippon Airways (ANA) is Japan's No.2 carrier.
Considering how desperate American is, it's likely that they'll offer more than what Delta has been reported as ready to spend, Miyamoto said.
According to Japanese media, Delta would inject up to 50 billion yen into JAL and wants a tie-up that would include code-sharing on international flights.
Code-sharing with JAL would allow Delta to sell seats on JAL flights out of Japan directly to customers and expand its network in Asia. This would be at a time when the U.S. and Japan are discussing an open skies agreement which would allow closer cooperation on flight scheduling and profit sharing.
JAL shares closed up 8 percent, their biggest single-day jump in 11 months and the top performing stock on the benchmark Nikkei average, which fell 2.3 percent.
The number of outbound flights from Japan is slated to grow at Haneda and Narita airports as they extend runways or flight brackets. The newly elected Democratic Party of Japan has also promised to lower airport fees, which could lift demand.
Delta, which became the world's largest carrier when it bought Northwest Airlines last year, runs a hub at Narita airport but is without a Japanese partner.
But now that American Airlines has raised its hand, teaming up with American would make more sense, said Takahiko Kishi, a senior analyst at Mizuho Investors Securities.
Switching network alliances, which pool the frequent flier points of member airlines, would force JAL to spend significantly to change its computer systems, Kishi said.
JAL, which is headed for its second straight annual loss, is working an overhaul expected to include job cuts, a reduction in routes and asset sales after agreeing to accept government funds.
One large headache is JAL's pension system. JAL, which posted a 99 billion yen net loss in April-June, has said it could make a one-time saving of 88 billion yen this business year by cutting pensions.
But more than one-third of JAL's retirees and those planning to retire intend to vote against the move, according to an online poll on a website run by former JAL employees.
The stake sale in JAL, which has a market cap of roughly $5 billion, will be capped by Japanese aviation law, which says that the total stake by non-Japanese persons or entities in a Japanese airline cannot exceed one third of the voting rights.
JAL is also considering raising an additional 250 billion yen by March to help fund restructuring, including a new share issue worth 100 billion yen, the Nikkei business daily said on Sunday.
(Additional reporting by Yumiko Nishitani; Writing by Mayumi Negishi; Editing by Joseph Radford and Lincoln Feast)