Speaking to the media in Tokyo, AMR (AMR) CFO Tom Horton said that his company would work with the Japanese government to save carrier JAL. AMR and private equity team TPG are offering $1.1 billion toward a restructuring package designed to keep the airline flying, and to keep it within the Oneworld Alliance. Some other airlines in Oneworld, which counts both American and JAL as members, may also be making minor investments. AMR is locked in a competition with Delta (DAL) to provide funding to JAL; both airlines would like to get batter access to the carrier's Asia routes, and Delta is hoping to lure JAL into its SkyTeam group. Air travel in Asia is growing more rapidly than in the U.S. or Europe.
AMR will also seek antitrust immunity from the Japanese government for any tie-up with JAL so that the number of routes the airlines could fly would not be heavily restricted.
AMR is taking a huge risk, as Delta would be with its competing offer of about $1billion. Airline stocks suffered though a brutal sell-off when oil moved above $140 and the recession started to push down passenger loads. Early this year, as oil prices dropped, carrier stocks recovered some of their losses, but the effects of the weak economy and rising crude prices pushed them down again at mid-year. Most have only made modest market recoveries.
AMR is playing a dangerous game to pick up a better route footprint in Asia. Air travel there may be more robust there than it is in the U.S., but passenger loads are suffering everywhere. Both businesses and consumers have cut back on flying because of the recession and the slow "recovery." It's unlikely that air travel will recover to pre-recession levels while many companies are still losing money and unemployment is high.
AMR's investment in JAL would be a race against time. Travelers will return to the skies eventually, but that may not happen soon enough to offer AMR a reasonable return on its $1.1 billion.
Douglas A. McIntyre is an editor at 24/7 Wall St.