(Adds Boeing comment paragraph 18, fixes typo in paragraph 5)
By Tim Kelly, William Mallard and Tim Hepher
TOKYO/PARIS Oct 16 When Japan Airlines Co
broke with decades of tradition by buying long-haul
jets from Europe's Airbus rather than U.S. rival Boeing
Co, it informed the Japanese government by email without
any prior warning.
The deal, worth $9.5 billion at list prices, was a major
blow for Boeing, which holds more than 80 percent of Japan's
commercial-aviation market and has been intertwined with
U.S-Japan diplomatic relations since shortly after World War
But the way JAL communicated the decision - with a curt
message delivered to officials' inboxes just as it was publicly
announcing the deal, according to Japanese government sources
and a person close to the airline - was just as momentous.
For weeks the deal, initially a draft document, had been the
most closely held secret in the aerospace business. Now, JAL's
decision to focus on cold business logic revealed a new distance
between the national flag carrier and the Tokyo government.
It also sharpens the political implications of the choice
facing rival ANA Holdings Inc, which in coming months
is to make a similar decision on replacing its ageing Boeing
long-haul fleet with more fuel-efficient planes.
JAL's Oct. 7 order for 31 wide-body A350 jets was a coup for
Airbus, which had never directly sold a jet to the airline.
Analysts say the chances have increased that All Nippon
Airways will buy around 30 A350s, Airbus's first mostly
carbon-composite jetliner, in preference to Boeing's 777X, for
the same business reasons that JAL did. ANA's decision is
expected by early 2014.
But shifting political allegiances following JAL's
bankruptcy three years ago, which brought a change in company
leadership, have meant that the flag carrier is no longer under
the same government sway that has guided major aerospace
decisions throughout the postwar period, say people close to
both airlines. ANA, by contrast, is now close to the ruling
party, and may come under greater pressure to buy Boeing.
The head of a prominent leasing company with links to both
planemakers told Reuters ANA would probably select the 777X.
The diplomatic picture is complicated by Japan's talks on a
free trade deal with the European Union, which Airbus executives
believe could exert a countervailing influence in its favour.
The government says it is completely hands-off - as World
Trade Organization rules demand. Sources with both planemakers
however accuse the other of wheeling out diplomatic support.
JAL's choice of Airbus "was a private decision made by a
private company, and the government has absolutely no connection
to it," Chief Cabinet Secretary Yoshihide Suga said on Tuesday.
"The various airline companies make their decisions on what
to buy based on their own management situations."
For decades JAL saw itself as Japan's elite airline, what
one person with many years' experience in U.S.-Japan business
and governmental affairs called "an appendage of the Japanese
ANA was the also-ran, a one-time helicopter service operator
that only made its push into international flights in the 1980s.
Boeing dominates the Japanese market partly because of the
close U.S.-Japan security and diplomatic alliance.
It also shares the building work widely in Japan, with
companies such as Mitsubishi Heavy Industries Ltd and
Kawasaki Heavy Industries Ltd making as much of the 787
Dreamliner airframe as Boeing itself does.
A Boeing spokesman said in an emailed statement that the
company spent nearly $4 billion on goods and services in Japan
in 2012, accounting for around 22,000 jobs or more than 40
percent of the country's aerospace workforce.
"Boeing and Japan are one," the then-president of Boeing
Japan told U.S. officials in 2008, while the company was
lobbying successfully for ANA to buy its jets, according to an
embassy cable to Washington published by Wikileaks.
In the past, "there was pressure by government at the
highest levels to buy Boeing", said the U.S.-Japan source.
That relationship changed during the long-ruling Liberal
Democratic Party's rare spell in opposition between 2009 and
2012. ANA continued assiduously to court LDP lawmakers, who felt
abandoned by JAL executives, people familiar with the process
In 2010 JAL collapsed into bankruptcy and was put through a
$3.5 billion taxpayer rescue by the Democratic Party of Japan,
which brought with it a new CEO appointed by the government.
When Prime Minister Shinzo Abe led the LDP back to power
last December, regaining the role the party has held for almost
all of the past 60 years, JAL was now seen as the airline of the
opposition and ANA enjoyed official favour.
ANA denied it was coming under political pressure to buy
Boeing. "There is nothing of the sort," a spokesman for the
An illustration of that political shift came at the start of
this month, when Abe's government granted ANA more than twice as
many new landing slots at Tokyo's Haneda airport as it gave JAL.
The government said the unprecedented skew was to redress
the competitive advantage JAL had gained from the rescue, which
saw creditors forgive 730 billion yen ($7.4 billion) in debt.
Landing slots at the capital's Haneda and Narita airports,
which can each mean $20 million a year in operating profit for
an airline, had previously always been split evenly.
JAL, which earned an operating profit of 20 billion yen for
the three months to June, has appealed against the awarding of
more slots to ANA, which lost 5.6 billion yen during the period.
The decision, traditionally handled by the Civil Aviation
Bureau, was this time taken over by the Prime Minister's Office,
where top executives of both airlines went personally to lobby,
according to people familiar with the process.
"It was the wish of the LDP to punish JAL, and ANA leveraged
that," said a person close to JAL.
The frostiness between the government and JAL meant it was
not under pressure to buy Boeing, and the airline made its
decision based on the merits, said a person close to JAL. People
close to Airbus said the post-bankruptcy JAL is, as one of them
put it, "more cost-conscious and business-oriented".
JAL President Yoshiharu Ueki said delivery schedules played
a big part, and a source close to the airline said it was
"totally about timing. Boeing would have been too late".
The Dreamliner debacle also loomed large.
JAL's Ueki said the decision to buy Airbus was not linked to
the 3-1/2 years of delays of the Boeing 787 or the
self-combusting batteries that grounded the global fleet in
But a person close to Boeing said JAL's decision was "in
some ways understandable given the hell we have put them
through" with the Dreamliner.
ANA, the launch buyer and world's biggest owner of the 787,
suffered millions of dollars of losses as a result. The airline
will factor the risk of a delay in aircraft delivery into its
purchase decision, CEO Shinichiro Ito told Reuters last month.
Boeing and Airbus are wooing ANA, people familiar with the
process say, while the airline says it is seeking more
information from the makers.
After the JAL setback, ANA is fast becoming a "can't lose at
any cost" deal for Boeing, said an industry source close to the
But Tokyo's interests are not unequivocally aligned with
Washington's anymore, said a person close to Airbus.
The Japanese government is "very eager" to complete a
free-trade agreement with the European Union, especially as
rival South Korea has already sealed such a pact, he said.
For years, the EU, which has a formal trade dispute with
Japan, has contended that the practice of favouring Boeing over
Airbus amounts to a non-tariff trade barrier. Tokyo is keen to
prove otherwise, the source said.
"The political environment was favourable because of the
discussions to establish a free trade agreement between Japan
and the EU," Airbus Chief Executive Fabrice Bregier said of the
successful campaign to win over JAL.
"(It) meant the environment would support this kind of
partnership or at least would not prevent it," he told Reuters.
The breakthrough followed years of smaller deals and patient
lobbying which intensified following a reorganization of the
Japanese activities of Airbus parent EADS and the arrival in
2010 of a new salesman, contracts expert Jean-Pierre Stainnack.
For years, the Airbus sales job in Japan was seen as one of
the toughest in the industry.
Airbus had struggled to get a foot in the door to present to
departments that can create a groundswell inside an airline in
favour of one manufacturer, such as maintenance teams.
But JAL's restructuring and new CEO appeared to change all
"We used marketing 101. We started small, put in initial
aircraft and worked through lessors for many years," Stainnack
said of the European company's conquest of Japan. "For JAL, we
went in with a clear notion of the market and didn't want any
political interference. The airline would have said the same."
($1 = 98.1150 Japanese yen)
(Additional reporting by Norihiko Shirouzu, Kevin Krolicki,
Tetsushi Kajimoto, Yoshifumi Takemoto and Elaine Lies; Writing
by William Mallard; Editing by Alex Richardson)