American Airlines enters bidding for JAL

It seems that nearly every large carrier in the world wants to own a piece of Japan Air (JAL). Delta (NYSE:DAL) and Air France-KLM have already been said to be talking to the Asian carrier. Now one of JAL's major traffic-sharing partners, American Airlines (NYSE:AMR), may be ready to invest what could be well over $1 billion.

According to Bloomberg, JAL, which has been losing money for most of the last five years, will not leave its fate in the hands of another airline. JAL "may be seeking 250 billion yen ($2.8 billion) to rebuild operations."

Why all the interest in JAL? The International Air Transportation Association says the airline is about the same size as Continental (NYSE:CAL), which makes its volume of traffic among the top ten carriers in the world. Japan is a rich market for business travel. Although it ranks only 10th among the world's most populous nations, it has the second largest GDP. Any investment into JAL would probably come with the privilege to sell tickets directly on the Asian airline's routes.

The question is where will AMR, or any other US carrier for that matter, get the capital to make a major investment? US airlines are having significant profit problems on their own as passenger traffic has plunged due to the recession, and oil has climbed back to $70.

AMR had better look after its own interests. Investing in another airline carries risk. If airline traffic stays low, it may need to go into the capital markets to raise billions of dollars for itself.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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