Tokyo: Japan Airlines (JAL) shares jumped on Monday following news that the struggling airline was in talks on investment by American Airlines and Delta Airlines.
The heavily traded shares were up 6.8%, headed to their biggest single-day jump in 11 months and outperforming a 2.4% fall in the benchmark Nikkei average.
JAL, Asia’s largest airline by revenues, lost about $1 billion last quarter and is seeking investors to prop up its finances for a state-supervised overhaul expected to include job cuts, a reduction in routes and asset sales.
“JAL shares will stay high today, as uncertainties about its financial conditions are eased by the report of investment,” said Kazuhiro Takahashi, manager of equities at Daiwa Securities SMBC.
“However, whether JAL can turn around its business is another story. Focus is on details of the possible deals and how JAL capitalises on them to reform its management.”
American Airlines, a unit of AMR Corp, has been in talks to invest in JAL and form a joint venture through which the two would share revenues and offer business customers joint contracts, a source with direct knowledge of the talks told Reuters on Sunday.
JAL is also weighing an offer from Delta, a source told Reuters last week. According to Japanese media, Delta would inject up to 50 billion yen ($553.8 million) into JAL and wants a tie-up that would include code-sharing on international flights.
Japanese aviation law prohibits any non-Japanese persons or entities from taking more than one third of a Japanese airline’s voting rights.
Joining hands with American would make more sense for JAL, since they are both members of the same Oneworld airline alliance, said Takahiko Kishi, a senior analyst at Mizuho Investors Securities.
Delta, which became the world’s largest carrier when it bought Northwest Airlines last year, is a member of the rival SkyTeam group. Both pool frequent flyer incentives.
“If JAL decides to ally with Delta, then it will probably have to spend a lot to change its computer systems and such,” he said.
Through code-sharing, a deal would yield more affordable access to the growing market for flights in Asia to the U.S. airlines.
JAL, which is headed for its second straight annual loss, is also considering raising an additional 250 billion yen by March to help fund restructuring, including a new share issue worth 100 billion yen, the Nikkei business daily said on Sunday. JAL is due to report its new business plan around the end of September.
JAL, which is also saddled by pension fund problems, plans to ask aircraft makers, trading houses, investment funds and the Development Bank of Japan to buy shares, it said.
The share issue would help boost the airlines’ shareholders’ equity ratio, which was down to 9.3% as of 30 June, about half that of rival All Nippon Airways.
JAL secured a deal in June to borrow 100 billion yen from two state-backed lenders and three commercial banks, who along with regulators, are putting pressure on JAL to come up with more drastic cost-saving measures.
JAL also plans to cull domestic and international flights, and said last month that it would start talks to merge its loss-making cargo business with a unit of shipping firm Nippon Yusen.