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IAG May Pursue Japan Airlines Stake

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March 30, 2011, 12:13 AM EDT

By Chris Cooper


March 30 (Bloomberg) -- International Consolidated Airlines Group SA, formed from the merger of British Airways and Spain’s Iberia, said it may consider investing in Japan Airlines Corp. after the Asian carrier came out of bankruptcy this week.


“JAL has done a fantastic job,” IAG Chief Executive Officer Willie Walsh said in an interview. “If the opportunity arises we would definitely be looking at deepening the relationship and we wouldn’t rule out some equity participation.”


Japan Airlines completed restructuring this week after a year in bankruptcy protection and Enterprise Turnaround Initiative Corp. of Japan, the state-backed fund that led the bailout, is aiming to sell its ownership stake by January 2013. Rival All Nippon Airways Co., Japan’s largest listed carrier by sales, has said it is planning a joint venture with Deutsche Lufthansa AG, Europe’s second-biggest airline.


“It could potentially make good business sense in strategic terms,” said Peter Harbison, managing director at the Sydney-based Centre for Asia Pacific Aviation. “The thing that’s really ignited the need is Lufthansa and ANA.”


‘Needs Consolidation’


The airline industry “needs consolidation,” and London- based IAG, Europe’s third-biggest airline, is “ambitious” and aims to expand, Walsh said yesterday in Tokyo, where he met JAL’s president and chairman and banks after the March 11 earthquake and tsunami.


Japan Airlines is open to talking with British Airways about different types of cooperation, Sze Hunn Yap, a spokeswoman at the Tokyo-based carrier, said by telephone.


JAL, which cut about one-third of its staff, retired planes and secured new financing under bankruptcy protection, is a member of IAG’s Oneworld global alliance and already has a code- share deal with BA, through which the carriers sell tickets on each other’s flights as if they were their own.


AMR Corp.’s American Airlines, along with private-equity firm TPG, last year offered to invest $1.4 billion in JAL in an effort to persuade the carrier to remain with Oneworld. The Asian carrier stayed, turning down an offer from Delta Air Lines Inc. and its SkyTeam partners including Air France-KLM Group.


JAL Joint-Venture


JAL is due to implement a venture with American next month to cooperate on 10 transpacific routes, including New York-Tokyo and Beijing-Chicago. The tie-up will generate sales and cost gains of about $150 million a year for the pair as they share expenses and coordinate fares, the Fort Worth, Texas-based company said in January.


IAG is interested in a similar agreement between British Airways and JAL to cover routes between Japan and Europe should it be able to receive antitrust immunity, according to Walsh.


“We have had some discussions about looking at a joint venture, an immunized relationship,” he said. “That is something both of us are keen to pursue. Asia is a very important market. It’s probably the fastest growing area in the industry.”


The International Air Transport Association said this month that Asia-Pacific passenger traffic could account for 30 percent of the global total by 2014, versus 26 percent currently.


ANA will begin a trans-Pacific accord with Star alliance partner United Continental Holdings Inc. on the same day as the American alliance starts.


Tokyo-based ANA has also tied up Hong Kong-based investor Victor Chu’s First Eastern Investment Group to start a discount carrier in Japan. First Eastern will own as much as 33.3 percent of the carrier, the maximum foreign ownership permitted in Japan.


British Airways, which has two flights between London and Tokyo, is “determined to maintain full services” there following the magnitude 9 earthquake and tsunami that hit northern Japan earlier this month, Walsh said.


The U.K. carrier is operating both flights to the capital’s Narita airport following the quake, shifting one from Haneda, and is having its crews stay overnight in Seoul.


“Hopefully we will be able to get back to a normal BA schedule as soon as possible,” Walsh said.


--Editors: Chris Jasper, Neil Denslow.


To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net


To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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