JAL to stay with American in blow to Delta

An airport employee works on a Japan Airlines' plane at New Chitose airport in Chitose, northern Japan January 19, 2010.

TOKYO (Reuters) - Japan Airlines 9205.T said it would keep its partnership with American Airlines in the Oneworld alliance, ending an attempt by Delta Air Lines (DAL.N) to entice the bankrupt carrier to its rival SkyTeam group.

JAL, Asia's largest carrier by revenues, said it would file with AMR Corp's (AMR.N) American 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. Delta had been eager to gain access to JAL's 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 that 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 program in front of us."

JAL joined Oneworld in 2007, one of three major alliances that 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.

In a statement, Delta said it would continue to offer customers "unmatched access" to Japan.

Shares of AMR jumped as much as 10 percent in morning U.S. trading in New York while Delta was up 8 percent.

"For Delta, we believe this is a non-event in the short term as they have access to Asian markets through its large Pacific division," Jesup & Lamont Securities analyst Helane Becker said in a note to clients.

FEWER RISKS

American and Oneworld partners including British Airways (BAY.L) 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 that 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 antitrust 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 and Karen Jacobs in Atlanta; Editing by Dan Lalor and Derek Caney)

($1 = 89.59 yen)

(nathan.layne@thomsonreuters.com; +813-6441-1801; Reuters Messaging: nathan.layne.reuters.com@reuters.net))