JAL/JAS Merger Developments.

Japan Airlines and Japan Air System have said they would set up a holding company next year, a first step toward merging.

The move is the first major realignment in Japan`s airline market in three decades and comes weeks after the collapse of several airlines around the globe, including Swissair, Sabena of Belgium and Ansett Australia. Combined, the Japanese companies would become the world`s sixth-largest airline and control half of the Japanese market, which had 93 million passengers last year.

Japan Airlines plans to swap shares with Japan Air Systems, which is strong domestically, and form a holding company by September 2002. The plan is for the two sides to consolidate operations by 2004, setting up separate divisions for domestic, overseas and cargo units. Together, the two companies operate 257 airplanes, employ more than 52,000 people and have revenue of 2.1 trillion yen (USD 17.4 billion).

Mr Isao Kaneko, president of Japan Airlines said the new company would save millions of dollars without wholesale layoffs or flight reductions. The two airlines must get approval from the Fair Trade Commission, labor unions and their respective shareholders.

Few other details were released, including the location of the new headquarters, the company`s new logo or the ratio of shares to be swapped. The new alliance is likely to put pressure on the country`s second-largest carrier, All Nippon Airways, which controls 49% of the domestic market.