The long-awaited restructuring of Japan Airlines began in earnest last week when the struggling carrier filed for its country’s version of Chapter 11 bankruptcy protection and filed Chapter 15 in the U.S. to protect assets here.
Still unclear, however, is whether JAL will remain a partner with American, British Airways and Qantas in the Oneworld alliance, or whether it will accept an offer from Delta to join SkyTeam.
Press reports on both sides of the Pacific say a deal has been reached to shift the Japanese carrier to Delta and SkyTeam, but officials aren’t confirming those reports on the record.
For now, as JAL begins what could be a three-year restructuring, the carrier remains a Oneworld member and all of its pre-bankruptcy relationships remain in place.
But the restructured JAL is going to be quite a bit leaner than the airline was when the year started.
According to JAL’s bankruptcy filing, the airline has been carrying a debt of $28 billion after hitting up the government for four bailouts over the past 10 years, including $10 billion in capital and credit approved last week to be used in the current restructuring.
Japan’s banks also have agreed to forgive more than $8 billion in outstanding loans. Retirees and employees agreed to more than $11 billion in pension cuts.
JAL will be delisted from trading on the Tokyo Stock Exchange on Feb. 20, and the airline will shed some other operations, including its credit operation and smaller rural carriers.
While earlier media reports said JAL also would shed its hotel management subsidiary JAL Hotel, which operates about 60 properties under the brands Nikko Hotels International and Hotel JAL City, there was no word last week of the fate of those operations.
Japan’s state-backed Enterprise Turnaround Initiative Corp. of Japan, which is spearheading JAL’s restructuring efforts, has estimated that an alliance with Delta would give JAL an annual benefit of $189 million, about three times more than expanded ties with American would offer.
But American executives said no one should count them out just yet.
"Despite press reports otherwise, we continue to have an active dialogue with JAL, with the government, with the banks, with everybody who is relevant in this process," American CFO Thomas Horton said during last week’s quarterly earnings call.
American CEO Gerard Arpey said he didn’t see how the Transportation Department could approve an antitrust immunity approval for any Delta-JAL combination, which would essentially set up a market duopoly for Delta’s SkyTeam and United’s Star Alliance.
"Clearly having three roughly equal alliances competing in the U.S., the Japanese markets is preferable to two large ones and a small one," said analyst Vaughn Cordle of consultancy AirlineForecasts.
"However, if the choice is between not having an open-skies agreement and a lopsided competitive market, where Star and SkyTeam dominate a much smaller Oneworld, I suspect that the U.S. government will go with the choice that provides the greatest consumer benefit."
In other words, Cordle said, an open-skies agreement is more important than maintaining the best balance of competition between three competing alliances that are roughly equal.
"It would make a mockery of the whole notion of open skies," Arpey said. "The thought that the carriers that have had the duopoly in that market where other airlines, including American, have been prevented from competing in Japan for 50 years — that open skies would lead to them having immunized partnership would be a joke."