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. Last Updated: 07/27/2016

Japan Airlines Tie Up To Form World No. 6

TOKYO — Japan Airlines Co Ltd. and Japan Air System Co. Ltd. said Monday they will merge forces to form the world's sixth-biggest carrier, marking the latest industry shake-out after the Sept. 11 attacks.

JAL, Japan's top airline, and third-ranked JAS will set up a joint holding company in September 2002 through a share transfer, planning to merge their operations fully in spring 2004 to fend off what they said was "intense global competition."

"This is a time for great change in the Japanese airline industry," said JAS president Hiromi Funabiki, who will be chairman of the new holding company. "This [holding company] is a step in the right direction."

The tie-up comes as Japan's airline industry faces a triple whammy of heightened domestic competition from cut-rate carriers, slumping international traffic after the Sept. 11 terror attacks on the United States and rising insurance costs.

Airlines worldwide have been hit by increased insurance costs and a fall in passenger numbers after the September suicide attacks, evidenced by the collapse of Belgium's Sabena national carrier last week. It was the first European Union flag carrier to go bust.

The JAL-JAS merger is the first major realignment in the Japanese air transport industry since 1971, when JAS, then known as Toa Domestic Airlines Co., was created through a merger.

JAL president Isao Kaneko, who will also be president of the new holding company, said it may be able to cut costs by eliminating overlap in operations such as the rental of ground equipment, but failed to give further details.

He added that the merger will not affect JAL's current alliance with 19 international carriers, including British Airways PLC, Cathay Pacific Airways Ltd. and American Airlines.

Other details of the deal, which is subject to government and shareholder approval, will be decided later, the two firms said.

Analysts welcomed the move, saying it could cement the airlines' positions in the competitive domestic market, where revenue flows tend to be steadier than for international flights.

"This is a significant merger as it will allow them to compete equally with market leader ANA in the domestic market," said Masahiro Isono, senior analyst at Tsubasa Securities.

The deal is expected to bolster JAL's position in the domestic market, which is currently dominated by Japan's second-largest airline, All Nippon Airways Co. Ltd., as it struggles to cope with a sharp fall-off in its mainstay international travel division.

Slumping overseas flights led JAL to forecast a group net loss of 40 billion yen ($332.4 million) for the year to March 31.

The merger sets the stage for a showdown with ANA in the domestic market as the new group would control about 48 percent of the domestic market, level with ANA's market-leading 49 percent share.

In the year ending in March, JAL and JAS had combined group sales of 2.1 trillion yen and total staff of 52,014, surpassing ANA by 66 percent and 77 percent, respectively.