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TPG eyes struggling Japan Airlines

The firm may try to replicate one of its greatest triumphs - the successful turnaround of Continental Airlines - in a deal that could reportedly be worth $300m or more.

TPG Capital may pursue a minority investment in stricken Japanese national carrier Japan Airlines alongside US airline operator American Airlines, a source close to the firm has confirmed.

TPG would need an invitation from Japan Airlines and the Japanese government to pursue the deal before further action can be taken.

Thomas Horton, the chief financial officer of AMR Corp, American Airlines’ parent company, told Reuters that TPG had agreed to potentially partner the company on any deal.

“As appropriate and if it were welcomed by Japan Airlines and the government of Japan, TPG could also be part of a comprehensive recovery plan,” Horton told reporters in Tokyo. An unnamed source told Bloomberg American Airlines and TPG could invest at least $300 million in the Japanese airline.

TPG could also be part of a comprehensive recovery plan.

Thomas Horton

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 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.

Another US airline, Delta Airlines, has also proposed an investment in the loss-making Japanese carrier. 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, Reuters noted.

Japan Airlines is a member of the Oneworld alliance of airlines, the same network to which American Airlines belongs. According to the report, American Airlines does not want Japan Airlines to join Delta, which belongs to the rival SkyTeam group of airlines.

JAL: TPG considers coming on board

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.

TPG declined to comment.