Things in the Sky

The potential of Delta investing in JAL and having that carrier move over to SkyTeam has been one of the more exciting stories of late. At an event commemorating Mexicana’s entrance into oneworld, American CEO Gerard Arpey (who is also Chairman of the oneworld Board of Governors) had some interesting things to say about JAL:

“Let me be very clear. JAL is a highly valued member of oneworld. The alliance and its other member airlines have deep and long-standing partnerships with JAL that produce hundreds of millions of dollars of value for JAL, and we are committed to maintaining and strengthening that partnership.

As its country’s and the region’s biggest airline, Japan Airlines has been right in the eye of the storm. The media have been speculating extensively on JAL’s prospects and its alliance strategy. We are convinced that we can deliver the most meaningful alliance value to JAL — by a wide margin — and without any of the regulatory risk a change in alliance strategy would mean for them, not to mention the financial costs JAL would incur if it changed alliances at such a critical phase in its restructuring.”

(Emphasis mine.)

Obviously, American and oneworld want JAL to stay where it is . Otherwise, the alliance would lose a lot of market share in Asia (though Cathay would still be a member). The loss of JAL would result in oneworld ceding the domestic Japanese market to SkyTeam (if JAL joined them) and Star (where ANA is a member).

Of course, American also wants JAL to stay in so the two carriers can seek anti-trust immunity, assuming that the Japanese and U.S. governments make progress on a proposed Open Skies agreement.

It’ll be interesting to see how this one develops, but it will probably take awhile for everything to sort itself out here.

American, which had some big liquidity moves last week, announced yesterday that it would be making further moves to boost its cash balance by issuing notes $250 million of notes due in 2014 along with 30 million shares of common stock. The offerings have over-allotment options of $37.5 million and 4.5 million shares, respectively.

(Photo courtesy of oneworld)

Shares of American’s parent, AMR, have taken a  hit in after-hours trading, and are currently down about 4%. Perhaps the street is concerned about the dilution caused by the new offering. The new shares could increase the number of shares outstanding by 10.7%, or up to 12.5% if the entire over-allotment option is utilized.

The combined offerings have the potential go give American an over $500 million in liquidity. I’m interested in seeing how the offering of notes goes – when United offered notes, for example, they had to offer them at a discount resulting in a 17% yield.

American will be using the proceeds of these offerings for the always-revealing “general corporate purposes,” though their was in interesting note in both SEC filings:

We are in discussions with The Japan Airlines Group (“JAL”), a member of the oneworld alliance, about ways to broaden and deepen our relationship. We are discussing various options, including a joint business relationship with JAL and possible capital or financing arrangements. We cannot give any prediction as to the timing or outcome of these discussions.

Could the proceeds be used to aid in a partial purpose of JAL? That’s very possible, but either way, building up cash is a good thing.

Speaking of JAL, one new idea going around is the possibility of splitting up the carrier into two parts, one with profitable operations, and one with all of the..er…crap.