TPG, AMR offer $1.1bn for Japan Airlines

TPG is once again targeting a struggling airline, having teamed with American Airlines on a joint bid to restructure JAL. Rival US-based carrier Delta is also bidding.

In the latest instalment of the restructure of struggling national carrier Japan Airlines (JAL), TPG Capital and US airline operator American Airlines have offered to invest up to $1.1 billion “should this be welcomed by the airline and the Japanese government”, according to a statement released by American Airlines.

This compares to a $1 billion proposal reportedly offered by American Airlines' rival Delta Airlines. Financial details of the TPG and American Airlines proposal were not disclosed.

“The total alliance value proposition developed by American Airlines, as JAL's biggest partner, our fellow members of Oneworld and our financial partner TPG, is very clearly vastly superior in every aspect to anything anyone else is offering,” American Airlines' chairman and chief executive, Gerard Arpey said in the statement.

Last month, a source close to TPG confirmed to sister site PEI Asia the firm was interested in exploring a potential deal with JAL, although they said an invitation would be needed from Japan Airlines and the Japanese government before any further action could be taken. At the time, Bloomberg reported that American Airlines and TPG might invest at least $300 million in the company.

According to the most recent American Airlines statement, a joint venture agreement with JAL would result in about $100 million in revenue for the Japanese carrier in addition to the $500 million a year it currently makes its Oneworld relationships.

Oneworld is an alliance of airlines which includes American Airlines and JAL as members. Other members of this alliance include British Airways, Cathay Pacific, Finnair, Iberia, Malev Hungarian Airlines, Mexicana, Qantas and Royal Jordanian.

The Oneworld alliance is keen to assist JAL in its restructuring to prevent it from entering into an agreement with rival Delta, which belongs to the SkyTeam group of airlines. Japan Airlines is Asia’s largest carrier by revenues and both American Airlines and Delta Air Lines are keen to get a stronger foothold in Japan.

Japan Airlines is currently seeking its fourth bailout from the Japanese government in eight years and has debts of about $15 billion and a large pension deficit. In late October, the airline requested the Enterprise Turnaround Initiative Corporation of Japan (ETIC) fund its restructuring plans to “revitalise our business”. ETIC provides support to companies carrying excessive debt.

It has been reported that the Japanese government has agreed to support the struggling airline through the offering of a bridge loan. While the size of the loan has not been made public, two sources told Reuters in November that the Development Bank of Japan is to offer a ¥100 billion ($1.1 billion; €743 million) line of credit and private banks will put up another ¥25 billion.

TPG has a long history of investment – and attempted investment – in the airline industry. In the early 1990s, it engineered the much-lauded turnaround of Continental Airlines, which increased the airline’s value by 10 times in two years. It also invested in America West Airlines, which is now a part of US Airways, as well as Ryanair and Tiger Airways.

In August 2007, the firm won a bid to acquire Midwest Air Group in a deal worth approximately $450 million. However, in the same year, TPG was part of a Macquarie-led consortium that failed in its A$11.1billion ($9.2 billion, €6.8 billion) bid to acquire Australian airline Qantas. The consortium failed to secure the 50 percent shareholder acceptance needed for its bid.

Also in 2007, a consortium including TPG and British Airways withdrew its bid for Spanish airline Iberia after pressure from local bank Caja Madrid, which made an offer to become the largest shareholder in the airline.