Japan Airlines Corp <9205.T> is likely to opt for a tie-up with Delta Air Lines Inc or AMR Corp's American Airlines, among rivals seeking to invest in the loss-making carrier, if Japan and the United States can reach an open skies agreement.

The U.S. airlines, and others, are chasing a stake in Asia's biggest carrier by revenue to help them grow in China and get access to JAL's other Asian routes via code-sharing agreements.

One source, not authorized to discuss the talks publicly, said the carriers were each discussing investing $200-300 million in JAL for a minority stake and a code-sharing deal.

Asked if JAL would choose either Delta or American as a partner, CEO Haruka Nishimatsu told reporters on Tuesday: Yes, I think so, if an open skies agreement looks likely.

Such a deal would allow closer cooperation on flight scheduling and profit-sharing between U.S. and Japanese airlines.

Air France-KLM is also in talks to invest in JAL, said the source who was familiar with the matter. Air France-KLM said it had no comment.

Investing in JAL would bring access to Haneda, the world's third-busiest airport by passenger numbers. Both Haneda and Tokyo's Narita international airport are expanding, adding international flights and airline slots.

The decision by JAL, which is undergoing a state-supervised restructuring after years of losses, could reshape the alliances that dominate the global airline industry. The company said it hoped to wrap up the capital tie-up talks by mid-October.


If JAL opts for investment from Delta or Air France-KLM, it would be defecting from the Oneworld Alliance, a move analysts say would deal a huge blow to a group that includes British Airways , Cathay Pacific <0293.HK> and American.

Oneworld would lose JAL's more than 400 flight slots a week at Narita, twice those of Japan's No.2 carrier All Nippon Airways (ANA) <9202.T>, as well JAL's growing business in China.

JAL flies to nine cities in mainland China using its own fleet, three cities in South Korea, two in Taiwan, as well as to Manila, Singapore and Bangkok.

ANA is in the Star Alliance, with Air China Ltd <601111.SS>, Singapore Airlines Ltd and others.

Losing JAL would mean Oneworld suddenly has to rely more on American Airlines' few slots in and out of Narita, said Nomura analyst Makoto Murayama. American (AMR) in particular would be harmed, and is likely to fight that at all costs.

American Airlines, which is seeking U.S. approval by next month to form a transatlantic alliance with BA and Spain's Iberia , is the No.4 international carrier at Narita, with about 70 slots a week. Northwest Airlines, acquired by Delta last year, is the leading foreign airline at Narita.

Analysts said JAL would have to weigh the advantage of teaming up with Delta, the world's biggest airline, against the significant cost of leaving Oneworld.

If you just look at what the companies can offer, then Delta would make more sense as an ally because it has more services between Japan and North America, Credit Suisse analyst Osuke Itazaki said, adding that a tie-up with Air France-KLM would not expand JAL's network by much.

For related graphic, click: http://r.reuters.com/tup66d

Delta and Air France-KLM are members of SkyTeam, with Korean Air <003490.KS> and Russia's Aeroflot . JAL, which joined Oneworld in 2007, has a separate flight incentive partnership with Air France-KLM.

JAL shares, which had dropped by more than a fifth this year before news of the talks with Delta and AMR, fell 3.4 percent on Tuesday in a flat market <.N225>, erasing nearly half their previous day's gains.


JAL prefers American Airlines because of the Oneworld alliance, the source said, but the Japanese government prefers the financially healthier Delta or Air France-KLM.

JAL 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.

The airline has forecast a net loss of 63 billion yen ($693 million) for the year to end-March.

For related graphic, click: http://r.reuters.com/hak66d

As of end-March JAL had total liabilities of 1.44 trillion yen, with the Development Bank of Japan its biggest long-term lender.

As it looks to cut operating costs by 30 percent, CEO Nishimatsu said JAL faced its largest-ever downsizing through 2011, with plans to cut 6,800 jobs, or 13 percent of its total staffing.

Nishimatsu was talking briefly to reporters after meeting an independent panel reviewing JAL's turnaround.

The carrier will also cut its overseas routes to below half its total flights, Transport Ministry official Yasuhiro Shinohara told reporters.

Kyodo news agency said Korean Air <003490.KS> was also in talks with JAL.

(Additional reporting by Mariko Katsumura and in TOKYO and Jui Chakravorty in New York, writing by Mayumi Negishi, Editing by Ian Geoghegan)

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