TPG, AMR up Japan Airlines offer to $1.4bn

The revised offer is a $300m increase on the proposal made last month to the struggling Japanese carrier, as the syndicates seeks to head off a bid from rival Delta Airlines.

TPG Capital and US airline operator American Airlines have upped their offer for struggling national carrier Japan Airlines (JAL) to $1.4 billion.
The revised bid marks a $300 million increase over their previous proposal, made at the beginning of December, to invest $1.1 billion to restructure the Japanese airline.

The increased offer is part of a $2 billion commercial benefit plan for JAL put together by American Airlines and its Oneworld programme partners, including British Airways, Qantas Airways and Cathay Pacific Airways, according to a statement.

The increase is a further attempt to prevent JAL from joining hands with Oneworld rival Delta Airlines and deflecting to the SkyTeam group of airlines, which has offered the Japanese airline a $1 billion package that includes buying $500 million worth of JAL shares.

A JAL spokes person told PEI Asia the airline simultaneously continues to remain in talks with both the American Airlines-TPG consortium as well as Delta Airlines, but declined to comment on the expected timeframe for the restructuring to be completed.

Japan Airlines is nearing bankruptcy and is currently seeking its fourth bailout from the Japanese government in eight years. It has debts of about $15 billion and a large pension deficit. In October 2009, 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.

According to various media reports, ETIC is now preparing a restructuring plan for the company, one that will reportedly include an investment of ¥300 billion ($3.3 billion; €2.3 billion) in JAL. The restructuring is also likely to include several of JAL's bank lenders writing off loans worth several hundred billion yen, the Financial Times reported.

The media has also reported Japanese Prime Minister Yukio Hatoyama as stating at a press conference on Tuesday that Kazuo Inamori, a widely-respected Japanese entrepreneur will soon take over the reins of JAL from current chief executive Haruka Nishimatsu.

Japan Airlines' shares, which were trading at ¥67 on Friday 8 January, had plummeted to ¥7 by this Wednesday. At the time of writing, the company’s shares were trading at ¥8.

TPG has a long history of investment in the airline industry. It engineered the successful turnaround of Continental Airlines in the early 1990s and increased the airline’s value by ten times in two years. The firm has also in the past invested in America West Airlines, which is now a part of US Airways, Ryanair and Tiger Airways. In August 2007, the firm won a bid to acquire Midwest Air Group in a deal worth approximately $450 million.

There have also been instances where the firm has come close to investing in the industry but the deals have not materialised. In 2007, the firm 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.

The same year, 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.