Far Eastern to back budget airline

The Hong Kong-based firm has joined forces with All Nippon Airlines to create Japan’s first budget airline.

Hong Kong-based Far Eastern Investment Group has teamed with Japan’s All Nippon Airways (ANA) to create Japan’s first budget airline, according to a statement from both companies.

Though the financial details of the agreement have not been disclosed, Far Eastern will hold a 33.3 percent stake in the new airline – the maximum stake a foreign entity can take in a Japanese airline, according to the statement. Japanese investors will hold the remaining 66.7 percent, with ANA the largest shareholder with 39 percent of the company.

The new airline, which is expected to be operational by the second half of 2011, will fly both domestic and international routes and will be run independently of ANA. It will be managed out of Kansai International Airport in Osaka.

Victor Chu, chairman of First Eastern, told Reuters that once the airline was functional, it could become the first step of several regional travel-related investments.

“I think down the road our airline will be looking at more regional routes and for us at First Eastern we will be looking to invest in other related areas such as hotels, inbound tour operators, logistics, etc,” he was quoted as saying.

Rival airline Japan Airlines (JAL), which filed for bankruptcy earlier this year, also said it was considering the launch of a budget airline when it released details of its restructuring plan at the end of August.

The stricken carrier has been the subject of private equity interest from US giant TPG, which joined forces with Oneworld Alliance Member American Airlines last November to seek a deal with JAL. In December, the duo offered to invest $1.1 billion in the airline – an offer that was upped to $1.4 billion in January this year in order to head off a rival bid from Star Alliance member Delta Airlines.

JAL and American Airlines applied for antitrust immunity from Japan’s Ministry of Land, Infrastructure, Transport and Tourism in June – a move which some read at the time as bringing the TPG deal one step closer. In the meantime, however, JAL has secured a ¥350 billion capital injection (€3.3 billion; $4.2 billion) from Japanese government-backed Enterprise Turnaround Initiative Corporation, which was confirmed at the time the company’s restructuring plan was announced.