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Monday, 12 November, 2001, 06:53 GMT
Japanese airlines consider merger
JAS Airbus A300
JAL already holds parts of JAS
Japan's leading airline, Japan Airlines (JAL), and third-ranked Japan Air System (JAS) have started merger talks to form the world's sixth largest carrier by autumn next year.

"No basic agreement has been reached so far, however, there have been talks between the top management of both companies along such lines," JAL said in a statement.

JAS added in a separate statement the two were studying alliances but nothing specific had been decided.

The talks come as Japan's established airlines face increasing domestic competition from low-cost carriers and during a worldwide aviation industry slump after the attacks on the US.

Belgium's Sabena national carrier last week became the first European Union flag carrier to go bust, while Canada 3000 was declared bankrupt on Sunday.

Investors greeted the news from Japan by pushing up shares in JAL by 4.9% and JAS up by 3.03%.

Major restructuring of industry

Japanese Transport Minister Chikage Ogi told a parliament the merger was due next autumn, adding she was carefully monitoring how the move would affect the industry's competitiveness.

Most analysts however expect that the government will approve the merger.

It would be the first major restructuring of Japan's aviation sector since 1971 when JAS, then known as Toa Domestic Airlines, was created through a merger.

JAL said last month it expected a group net loss of 40bn yen ($332.4m) for the year to March.

It is thought by analysts to be the Japanese carrier acutely affected by the fall in overseas travel because it offers the most international flights.

Limited job losses

There are expected to be only limited job losses from a deal.

In the maintenance area, JAL uses Boeing planes, while JAS uses Airbus and McDonnell Douglas.

Also few savings will be made on administrative costs since the two companies would continue to exist under a holding company.

JAL already owns an 8.25% stake in JAS and has engaged in several joint projects with it to cut costs.

The BBC's Charles Scanlan
"The Japanese government is not known as much of a trustbuster...this merger is very likely to go ahead"
See also:

12 Nov 01 | Business
Canada 3000 goes bust
07 Nov 01 | Business
Belgian national airline goes bust
09 Nov 01 | Business
Round-up: Aviation in crisis
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