JAL, Asia's largest carrier by revenues, said it would file with American Airlines for regulatory approval for closer cooperation on transpacific routes under a recently signed open skies treaty between the United States and Japan.
The decision is a blow to Delta which had been courting the Japanese carrier for months with an offer of $1 billion in financial aid, eager to gain access to its vast network in Asia and position itself for an expansion of Tokyo's Haneda Airport.
Prior to its bankruptcy last month with $25 billion in debt, JAL was leaning toward Delta, attracted by the potential for cost cuts and revenue growth offered by its larger route network, especially in Asia, sources had said.
But JAL's new management team, put in place this month and led by chief executive Kazuo Inamori, decided switching alliances risked derailing its efforts to revive itself in three years with the help of a government-backed fund.
We had a fierce debate over whether we should choose Delta and Skyteam for future profitability or stay in Oneworld and avoid incurring a loss from making a switch this year, JAL Vice President Daiji Nagai told a briefing.
Our conclusion was that we have to survive this year and the next year at all costs. There is no 'after three years' unless we stay focused on the restructuring programme in front of us.
JAL joined Oneworld in 2007, one of three major alliances which pool frequent flyer miles and feed passengers between airlines. The other two are SkyTeam and the Star Alliance.
American had said that defecting to SkyTeam could drain JAL of about $500 million in revenues during a transition period of 18-24 months and argued a Delta and JAL tie-up would stifle competition by creating a dominant player on transpacific routes.
Delta said it would continue to offer customers unmatched access to Japan.
American and Oneworld partners including British Airways and Cathay Pacific Airways <0293.HK> had offered JAL $1.4 billion in capital to stop it moving to SkyTeam.
That money will not likely be needed given the state-backed fund, the Enterprise Turnaround Initiative Corp of Japan (ETIC), has said it would inject 300 billion yen ($3.35 billion) in fresh capital and would not seek outside investors for now.
The ETIC had estimated that an alliance with Delta could boost JAL's earnings by at least 9.2 billion yen a year, 70 percent more than the expected benefit of ties with American, according to a document obtained by Reuters.
Airline analyst Kotaro Toriumi said Delta would have been the wiser choice. There's no question that Delta would offer JAL more long-term benefits. But JAL's new management probably saw more value in stabilizing the company's business from a short-term perspective.
JAL said it would apply with American to regulators in the United States and Japan for anti-trust immunity and, upon approval, form a joint venture to work closely on flight scheduling and in other areas. It said it expected approval after September.
American had argued that regulators would not have approved immunity for a Delta and JAL relationship as they alone would have controlled more than 60 percent of the U.S.-Japan market.
(Additional reporting by Yuko Inoue and Mariko Katsumura; Editing by Edwina Gibbs and Dan Lalor)
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