10 December 2009 - The United States and Japan are on the cusp of formalizing a new aviation treaty that would further liberalize commercial air transport between the two nations and foster closer ties between alliance members on both sides of the Pacific. Star Alliance partners ANA, Continental and United airlines are exploring a possible joint venture and antitrust immunity application, while both American Airlines and Delta Air Lines are willing to do the same with Japan Airlines, should troubled JAL accept a rescue package from either of them.
"It is now time for consumers and business travelers between the two nations to benefit from the choices and options that have been available to travelers in many other parts of the world," according to a statement attributed to AA vice president of Asia and Pacific Theo Panagiotoulias.
U.S. and Japanese negotiators this week in Washington are working through several key issues, including ATI for airline allies and allocating capacity at Narita and Haneda, the two primary Tokyo-area airports. Narita in October opened an extended runway "designed to enable larger and more aircraft to use" the airport, according to the airport's operating company. According to a September 2007 U.S. Department of State report on aviation talks with Japan that year, "the Japanese delegation stated that achieving fair and equal conditions for competition at Narita International Airport in terms of the number of slots maintained by the designated airlines of both sides is a prerequisite for future negotiations for further liberalization. The U.S. delegation does not expect that U.S. carriers will be allocated a percentage of the new slots greater than the percentage of slots currently allocated to U.S. carriers at the airport."
At Haneda, an expansion project scheduled for completion in 2010 includes a new terminal and a fourth runway, paving the way for international services, including Japan-U.S. flights. "The U.S. delegation stated that it fully expects the U.S. government to accept scheduled services at Haneda airport under the civil air transport agreement, but only if there is a fair and equal opportunity for the airlines of both sides to operate," according to the State Department report.
Meanwhile, Japan is pushing for antitrust immunity with U.S. carriers for its two international airlines, ANA and JAL, but the U.S. State Department--which negotiates aviation treaties--is not the agency responsible for approving such cooperation. That falls under the purview of the U.S. Department of Transportation.
USA Today quoted deputy assistant secretary of State John Byerly, the lead U.S. negotiator for Open Skies, as saying that a deal with Japan would not take effect before next fall at the earliest as DOT mulls ATI applications. Should DOT reject those requests, Japan could move to nullify the new aviation treaty.
U.S. carriers generally have voiced support for a deal with Japan. "Open Skies agreements end discriminatory aviation policies and are in the best interest of Japanese and American consumers and airlines alike," according to a statement attributed to AA senior vice president of government affairs Will Ris.
State Department representatives by press time had not provided additional information on the ongoing negotiations.
JAL's Continuing Plight
As the two countries try to hammer out a deal, Japan Airlines continues to work on a restructuring plan. The cash-strapped carrier will rely on government support for survival. According to numerous press reports, the Japanese government is prepared to provide ¥700 billion (US$7.8 billion) in credit guarantees.
"The Japanese government will assist us to help us get our feet on the ground," said Steve Smith, Japan Airlines vice president of sales in the Americas. "The government has said that there is no way they'll let JAL fail, and that JAL will remain a global entity." Smith said it likely would take until at least the end of January for JAL to finalize a plan and obtain government approval.
That plan also may include financial backing from and closer commercial cooperation with either American Airlines or Delta Air Lines. AA and oneworld members offered Japan Airlines a "total alliance value proposition" of US$1.8 billion to keep the troubled carrier as an ally. According to oneworld, the package includes US$1.1 billion in
funding from American Airlines "through a link with the TPG investment group"; a commitment from AA to file an application for transpacific antitrust immunity "immediately" after Japan and the United States finalize a new aviation treaty, which would lead to a joint venture and US$700 million in incremental revenue over 10 years; and expanded cooperation with British Airways and Finnair, including more codeshare flights.
"We strongly believe that an American Airlines-Japan Airlines joint venture would easily win U.S. government antitrust immunity, which will help ensure JAL's short- and long-term success," according to Panagiotoulias.
Delta Air Lines and its SkyTeam members previously pledged to provide JAL a package worth US$1 billion to entice it to join their alliance.
Star Alliance Eyes Further ANA Integration
As JAL contemplates its options, rival ANA is preparing to coordinate further with Star Alliance partners Continental and United. "We are already working with ANA and Continental to put into place a joint venture in the Pacific similar to
what we are putting in place in the Atlantic, and to put ourselves in a good position immediately when Open Skies is put in place across the Pacific," according to United CFO Kathy Mikells, speaking this week during an investment conference. "We are very comfortable with ANA's position at Haneda as that marketplace starts to change."
Mikells added that "it doesn't hurt to have our peers upping the ante in terms of what it is going to take for one of them to ultimately either retain JAL or get JAL."
In an 8 December report, Fitch Ratings wrote that "strengthening cross-border cooperation, joint ventures and the granting of antitrust immunity for global alliances represent important 'second-best' steps for U.S. carriers in their attempts to enhance the scale and scope of global route networks." The ratings agency, which characterized outright mergers as a better but less likely option, added that "progress toward the establishment of deeper transatlantic and transpacific ties through the three major airline alliances (SkyTeam, Star and oneworld) will remain the primary mechanism for 'shadow consolidation.' "
Antitrust immunity among alliance partners allows for cooperative scheduling, pricing and marketing. According to airline executives, it also provides an opportunity to offer corporate clients joint contracts and streamlined account management.
