Wolf’s Finance World

Air France-KLM is in talks to invest in Japan Airlines, a source familiar with the matter said, joining a list of suitors seeking a stake in the loss-making carrier to access its route network.

Delta Air Lines and American Airlines are also in separate talks with JAL, Asia’s biggest carrier by revenue, sources told Reuters at the weekend.

Each airline is discussing an investment of $200-$300 million in exchange for a minority stake and a code-sharing relationship with the Japanese carrier, but talks are fluid and the numbers could change, said the source, who was not authorized to discuss the talks publicly.

Analysts said JAL would have a difficult choice ahead.

“If you just look at what the companies can offer, then Delta would make more sense as an ally because they have more services between Japan and North America,” said Credit Suisse analyst Osuke Itazaki.

But he added JAL will have to weigh those advantages carefully at the significant cost of leaving Oneworld, an alliance which includes American Airlines.

JAL’s shares fell more than 2.5 percent to 171 yen on Tuesday, while the Nikkei average .N225 stayed flat, erasing some of Monday’s 8 percent gains.

Each airline is seeking access to JAL to help expand in Asia via code-sharing agreements.

Japan’s main domestic airport Haneda is the world’s third busiest by passenger numbers and is adding international flights. Tokyo’s international airport, Narita, also plans to expand airline slots.

BEST CANDIDATE?

JAL, which is undergoing state-supervised restructuring, prefers American Airlines because of the Oneworld alliance, the source said.

But the Japanese government prefers Delta or Air France-KLM, which it sees as financially healthier than American, the source added.

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

It plans to cut overseas flights and increase personnel cuts over the next three years in a bid to reduce operating costs by 30 percent, Japanese media said.

The airline will scrap some 20 of its international flights by March 2012, the Nikkei business daily said. That would mean a 20 percent drop in sales from overseas flights. 

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