American Airlines, along with fellow oneworld Alliance founding members British Airways, Qantas Airways and Cathay Pacific Airways, today outlined USD $2 billion in commercial benefits to Japan Airlines (JAL) over three years. The enhanced oneworld proposal would provide JAL the best path to future success while minimizing risk for the Japanese government and taxpayers and maximizing the benefits for air travelers.
The enhanced, broad-based commercial offer would serve as a key component of a comprehensive, government-led restructuring plan for JAL. As part of the proposal, JAL would remain a key partner in oneworld, a collection of 11 of the most respected brands in the airline industry.
The proposal also includes a pledge – if welcomed – to offer JAL guidance and expertise from partners that have successfully executed airline restructurings.
“This proposal demonstrates oneworld’s extraordinary commitment to JAL. It brings stability and certainty to Japan Airlines at a time when it is most needed, as it faces turbulent times over the coming weeks and months,” said Tom Horton, American’s Executive Vice President of Finance and Planning and CFO. “We believe our proposal is in the best interests of JAL and its employees and customers, and the government and taxpayers of Japan. It provides JAL the greatest long-term value at the lowest risk.”
PART 1: ENHANCED $2 BILLION COMMERCIAL BENEFITS FROM AMERICAN, BRITISH AIRWAYS AND QANTAS
The first part of the broad-based offer would provide for vastly enhanced commercial relationships between JAL and American, British Airways and Qantas. The three airlines’ approximately $2 billion in commitments and benefits would be realized by JAL over the three years and includes $1.5 billion of continuation of the ongoing revenue that JAL realizes from oneworld today, $300 million in incremental revenue guarantees from American Airlines, and approximately $200 million in enhancements from British Airways.
“We are pleased that two other founding members of oneworld, British Airways and Qantas Airways, have joined us at American Airlines to offer support through their commercial relationships with JAL,” Horton said.
American already has proposed to JAL to apply for anti-trust immunity (ATI) between the United States and Japan on the basis that American – with its strong network and ability to quickly obtain ATI – is the best choice for JAL. With immunity and by participating in a joint venture with American, JAL can realize a revenue benefit that will bring it an estimated $100 million annually. As part of this enhanced offer, American is guaranteeing the $100 million in new annual revenue for the first three years of the proposed venture.
British Airways, the United Kingdom’s largest carrier, has proposed a series of enhancements to its business relationships with JAL that will result in an approximate $200 million in new revenue to JAL over three years. Among the most significant of the initiatives is British Airways’ offer to create a joint business agreement with JAL so that, from April 2011 and subject to regulatory approval, the two carriers can enjoy greater revenue sharing opportunities that will offer real long-term value for Japan Airlines. As part of a joint business venture, British Airways will support and facilitate a new service between London Heathrow and Tokyo’s Haneda International Airport.
“We are committed to playing a full part in supporting the recovery of Japan Airlines within the oneworld alliance,” said Roger Maynard, Director of Investments for British Airways. “London remains the premier destination in Europe and needs to be central to JAL’s European plans.”
Beginning April of this year, British Airways will more than double the European points on which it code shares with JAL, which will provide greater opportunities for seamless passenger travel.
“This change will provide more convenient connections and an improved customer experience for Japan Airlines passengers arriving at Heathrow and connecting to flights operated by British Airways,” said Maynard.
And, beginning in November 2010, British Airways will move its operations at Narita International Airport from Terminal 1 to Terminal 2, which will improve the passenger connections for flights beyond Narita.
Qantas Airways today has also reinforced its support for Japan Airlines. Qantas Executive Commercial, Rob Gurney, said, “Qantas has offered to share expertise in relation to its two-brand and low-cost carrier business strategy. The Qantas Group’s two flying brands strategy has provided Qantas with unique strength in terms of scale, network and customer reach and has enabled us to meet the challenges of the global economic downturn. This model has already proved successful for the Qantas Group on services between Australia and Japan.
“Given our long-standing partnership with Japan Airlines and the oneworld alliance, Qantas is committed to working with Japan Airlines to ensure its long term viability and success,” added Gurney.
PART 2: INNOVATIVE EXPERTISE, GUIDANCE ON TURNING AROUND AN AIRLINE THROUGH RESTRUCTURING
American – with its 83-year history of innovation in the commercial airline industry – is willing to provide JAL support and cooperation in areas such as fleet planning, network analysis, financial forecasting, revenue management, and maintenance operations.
Since the 2003 launch of its own Turnaround Plan, American Airlines has implemented cost-saving programs and structural improvements in these areas that have saved the company approximately $6 billion, which allowed American to face the industry’s many challenges, including many that JAL faces today. TPG also has a history of success in the airline and travel industries and is ready to offer its expertise to JAL if desired.
“Our proposal also brings another crucial value to JAL. And that is the expertise of partners who can assist JAL, if invited, in a complicated restructuring,” Horton said.
The enhanced total value proposal is outlined in a letter from oneworld to Seiji Maehara, Japan’s Minister of Land, Infrastructure, Transport and Tourism; Hiroshige Nishizawa, President and Representative Director, Enterprise Turnaround Initiative Corporation (ETIC) of Japan; and Hideo Seto, ETIC Committee Chairman, Enterprise Turnaround Initiative Corporation of Japan.
Additionally, if deemed appropriate and welcomed, American Airlines/oneworld and TPG, one of the world’s leading private investment firms, are prepared to invest up to $1.4 billion as part of a comprehensive plan supported by the relevant participants to return JAL to financial vitality. This is a $300 million increase from their previous proposal, and it would be available if this was deemed an appropriate resource to aid in the restructuring of JAL.
PART 3: CATHAY PACIFIC, QANTAS AIRWAYS AND JAL OFFER UNIQUE CORNERSTONE HUBS IN THE ASIAN MARKETPLACE
Cathay Pacific Airways, with its Hong Kong hub, believes keeping JAL as a member of the oneworld alliance is a key to maintaining a strong presence in the strategically important and fast-growing Asian marketplace.
“The corporate business traveler wants access to the world’s most prestigious markets and JAL’s Tokyo hub and Haneda facilities are vitally important to link flyers to the major business centers of Japan, Hong Kong and Australia,” said Simon Large, President of Cathay Pacific-Japan.
“We believe the oneworld proposal will minimize burdens on Japanese taxpayers, improve air travel services and competition, and will allow Japan Airlines to prosper as a world-class global airline for the long term,” said American’s Horton.