JAL moves out from under Tokyo's influence

TOKYO - When Japan Airlines Co broke with decades of tradition by buying long-haul jets from Europe's Airbus rather than US rival Boeing Co, it informed the Japanese government by e-mail without any prior warning.

The deal, worth US$9.5 billion (S$12 billion) at list prices, was a major blow for Boeing, which holds more than 80 per cent of Japan's commercial aviation market and has been intertwined with US-Japan diplomatic relations since shortly after World War II.

But the way JAL communicated the decision - with a curt message delivered to officials' inboxes just as it was publicly announcing the deal, according to Japanese government sources - was just as momentous.

For weeks, the deal had been the most closely held secret in the aerospace business. Now, JAL's decision to focus on cold business logic revealed a new distance between the national flag carrier and the Tokyo government.

It also sharpens the political implications of the choice facing rival ANA Holdings Inc, which in the coming months is to make a similar decision on replacing its ageing Boeing long-haul fleet with more fuel- efficient planes.

JAL's Oct 7 order for 31 wide-body A350 jets was a coup for Airbus, which had never directly sold a jet to the airline. Analysts say the chances have increased that All Nippon Airways will buy around 30 A350s, Airbus's first mostly carbon-composite jetliner, in preference to Boeing's 777X for the same business reasons that JAL did. ANA's decision is expected by early 2014.

Shifting political allegiances following JAL's bankruptcy three years ago, which brought a change in company leadership, meant the flag carrier is no longer under the same government sway that guided major aerospace decisions throughout the postwar period, say people close to both airlines.

ANA, by contrast, is now close to the ruling party, and may come under greater pressure to buy Boeing. The head of a prominent leasing company with links to both planemakers told Reuters ANA would probably select the 777X. The diplomatic picture is complicated by Japan's talks on a free trade deal with the European Union, which Airbus believes could exert a countervailing influence in its favour.

The government says it is completely hands-off - as World Trade Organization rules demand. Chief Cabinet Secretary Yoshihide Suga said on Tuesday: "The various airline companies make their decisions on what to buy based on their own management situations."

For decades JAL saw itself as Japan's elite airline, what one person with many years' experience in US-Japan business and governmental affairs called "an appendage of the Japanese government". ANA was the also-ran, a one-time helicopter service operator that only made its push into international flights in the 1980s. Boeing dominates the Japanese market partly because of the close US-Japan security and diplomatic alliance. It also shares the building work widely in Japan, with companies such as Mitsubishi Heavy Industries Ltd and Kawasaki Heavy Industries Ltd making as much of the 787 Dreamliner airframe as Boeing itself does.

In the past, "there was pressure by government at the highest levels to buy Boeing", said the US-Japan source. That relationship changed during the Liberal Democratic Party's rare spell in opposition between 2009 and 2012. ANA continued to court LDP lawmakers, who felt abandoned by JAL executives, people familiar with the process say. In 2010, JAL collapsed into bankruptcy and was put through a US$3.5 billion taxpayer rescue by the Democratic Party of Japan which brought with it a new CEO appointed by the government.

When Shinzo Abe led the LDP back to power last December, JAL was now seen as the airline of the opposition and ANA enjoyed official favour. ANA has denied it was coming under political pressure to buy Boeing. "There is nothing of the sort," a company spokesman said. Now, after the JAL setback, ANA is fast becoming a "can't lose at any cost" deal for Boeing, said an industry source close to the US planemaker.