American Airlines and Delta Compete for Japan Airlines With the ink barely dry on a landmark aviation treaty between the United States and Japan, a billion-dollar bidding war escalated Wednesday over which American carrier would team up with troubled Japan Airlines. Tomohiro Ohsumi/Bloomberg News Gerard J. Arpey, left, chief of American Airlines, met with Seiji Maehara, Japan's minister for land and transport, Wednesday. American seeks a partnership with Japan Airlines. Multimedia The chief executive of American Airlines, Gerard J. Arpey, offered to raise his airline's $1.1 billion investment proposal for the Japanese carrier, known as JAL. At a news conference in Tokyo, he argued that a competing bid by Delta Air Lines would undermine the new treaty, which is meant to open up competition over the Pacific. Delta Air Lines, meanwhile, countered that its bid would provide more passengers and revenue from tickets to JAL. Its president, Edward H. Bastian, said in an interview he was confident that American regulators would grant antitrust immunity to a deal with JAL, something American has yet to receive for a longstanding deal with British Airways. The battle over JAL highlights the importance of routes over the Pacific, industry experts said. Although the Japanese economy is stagnant, its airports are still important transfer points for flights to other destinations in Asia. Further, Japan remains the world's second-biggest economy, and is a major destination for business travelers and companies shipping goods abroad, said Matthew J. Slaughter, an associate dean at the Tuck School of Business at Dartmouth. "It's big," he said of the tussle between the airlines over JAL. If you suddenly liberalize the flow between the world's two biggest economies, you can see why companies would want to take advantage of the situation. Late Friday, American and Japanese negotiators reached a preliminary agreement on an open skies treaty, similar to one reached earlier this decade between the United States and Europe. The agreement will allow airlines to fly more routes between the United States and Japan, and also opens up Haneda Airport in Tokyo to limited flights from the United States. International carriers largely serve Narita Airport, 40 miles from central Tokyo. However, Japanese officials said they would not sign the final treaty, set to take effect next fall, unless the country's two main carriers, All Nippon Airlines and JAL, find American partners and receive antitrust immunity from the Transportation Department. The applications must be filed by mid-February. All Nippon, known as A.N.A., is already a partner with United Airlines through the Star Alliance, a group of international airlines, and the two carriers plan to seek antitrust immunity. The government also wants JAL to seek assistance from another airline as part of a revamping plan. JAL, mired in red ink after years of mismanagement and the global economic downturn, is seeking a government bailout, but progress has stalled over steep pension reductions that will be required if the airline receives government assistance. JAL posted a loss of 32.2 billion yen ($360 million). But last month, Delta and SkyTeam said they were willing to provide a package of more than $1 billion in financial assistance to JAL, if it would become its partner and join its alliance. As the competition has heated up, the chief executives of both airlines have traveled to Japan to meet with JAL and government officials. Both argue that their experience in revamping, which took place through the bankruptcy process at Delta, and out of court at American, would be valuable in an overhaul of JAL. On Wednesday, Mr. Arpey said American, along with the Oneworld alliance and the investment advisers TPG, were willing to increase their offer above $1.1 billion. The bid "will enhance JAL's opportunity for long-term success, and it will inject a large amount of much-needed capital in the short term," he said. American's partnership with T.P.G. would increase its ability to "gather up the necessary capital," Mr. Arpey added. An arrangement with Delta, however, would create a true trans-Pacific powerhouse. Delta, which acquired Northwest Airlines last year, already operates about one-third of flights between the United States and Japan. Mr. Arpey also said that the costs and risks JAL would incur in switching alliances, at a time that it was also trying to restructure, would far outweigh the benefits. But Delta, which flies to Tokyo from 12 destinations, said its larger network would bring approximately $1 billion a year in revenue to JAL, double the $500 million a year in revenue JAL receives from the Oneworld alliance. Though international air travel has been weak for more than a year because of the global recession, industry officials say they believe it will improve in 2010, especially in Asia, which was hit hard by the economic decline. The anticipation of better days ahead explains why the two airlines are so eager to claim JAL as a partner, Mr. Slaughter said. "Japan still has very prominent business activity," he said. For passenger traffic and cargo traffic, an agreement makes total sense. Hiroko Tabuchi contributed reporting. Correction: December 18, 2009 An article on Thursday about two American airline companies that are vying to team up with Japan Airlines gave an incorrect conversion into dollars of JAL's most recent quarterly losses. JAL lost $360 million in its latest quarter, not $360 billion.