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Delta Offers To Cover Cost Of JAL Shift To SkyTeam - Source

By Doug Cameron, Of DOW JONES NEWSWIRES

CHICAGO -(Dow Jones)- Delta Air Lines Inc. (DAL) is offering to cover the cost of moving Japan Airlines Corp. (JAPNY 9205.TO) to its SkyTeam alliance, including any revenue lost from exiting the rival Oneworld grouping, according to a person familiar with the situation.

The proposal to compensate JAL for transition expenses and any business disruption during the realignment comes as Delta fights a fierce lobbying battle with American Airlines and its Oneworld partners, who are seeking to keep the loss-making Japanese carrier in their group, one of three that dominate the global industry.

Gerard Arpey, chief executive of American parent AMR Corp. Corp. (AMR), said Monday that it had more to offer JAL "by a wide margin" and suggested any tie-up with Delta carried more regulatory risk.

American and Delta each started talks earlier this year toward a partnership with JAL. Initial discussions focused on whether the U.S. carriers would inject as much as $500 million in capital into JAL, which is battling mounting losses that have seen it seek aid from the Japanese government.

Delta has declined public comment on its talks with JAL, but people familiar with the situation said providing a capital injection has taken a back seat in discussions to highlighting the potential benefits of joining SkyTeam.

While a member of Oneworld, JAL already has links with a number of SkyTeam members, including code-sharing deals with Air France-KLM (AFLYY AF.FR) and Korean Air Co. Ltd (003490.SE).

JAL's links with Oneworld partners include extensive code sharing with American, notably through its Chicago hub. A shift to Delta and SkyTeam may create some short-term disruption to traffic flows that the U.S. carrier is offering to cover.

Delta believes any revenue shortfall caused by the transition will be small, according to the person familiar with the discussions. The carrier has experience assessing transition costs, because it has been through the exit of former SkyTeam partner Continental Airlines Inc. (CAL), which last month left for Star.

JAL, which is expected to report a large fiscal first-half loss Friday, is cutting routes and jobs as it struggles with an inefficient network and the burden of its debt load and pension deficit.

Even so, both U.S. carriers view JAL as a valuable prize with access to congested Tokyo airports and traffic connecting to other points in Asia. Star, the third global alliance, is already allied with All Nippon Airways Inc. (ALNPY 9202.TO).

The pursuit of JAL is also tied to ongoing talks between the U.S. and Japan to liberalize their restrictive aviation agreement.

The negotiations are due to resume next month, with both sides aiming for an open-skies deal that would lift restrictions on the number of carriers and flights operated between the countries.

Such a deal could then open the way for JAL and its U.S. partner to seek antitrust immunity to deepen co-operation and coordinate schedules, fares and marketing.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

  (END) Dow Jones Newswires
  11-10-091322ET
  Copyright (c) 2009 Dow Jones & Company, Inc.