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Thursday, November 19, 2009

Let the JAL bidding war begin

Delta and other Skyteam members have officially made a bidding on Japan Airlines yesterday. They made a preliminary offer of $1.02 billion. On the other hand AA and TPG were rumored to offer $1.46 billion of investment for JAL.

According to The Wall Street Journal,

The Delta proposal calls for a $1.02 billion funding package for JAL in a bid to woo the Japanese carrier away from its affiliation with the Oneworld airline alliance.

The proposal by Delta and SkyTeam includes a $500 million equity injection from SkyTeam, a $300 million revenue guarantee from Delta and a further $200 million in asset-backed funding, as well as $20 million or more in transition costs for the switch.

On the other hand, according to Bloomberg (whose source is nikkei.com), TPG may invest as much as $1.12 billion in JAL on top of AA's investment of 30 billion yen.

Assuming the rumor is correct for TPG and AA's numbers, AA's bid is actually much more "generous". Skyteam is actually offered $700 million because $20 million of them is for transition costs which could be avoided with AA. And the $300 million revenue guarantee is just to cover the lost of Oneworld passengers, which could have been much more than $300 million. At least on paper AA's offer is a better one for the short term. Skyteam's offer could be more attractive in the longer term assuming Delta can provide more transpacific traffic than AA. Even Delta has more transpacific traffic than AA, however, it has its own intra-Asia flights for their connecting passengers while AA has none. So does Delta really provide more connecting passengers for JAL than AA? Only Delta, JAL and AA could figure that one out themselves.

One thing I am sure is the battle for JAL between Skyteam and Oneworld has just got more intense. Hopefully JAL can pick one SOON. I am not making any more bookings on AA for next year's travel until JAL picks an alliance. I don't want to pay for a ticket and get zero fly on points :P

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