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Two of Japan's biggest airlines agree on merger


TOKYO (AP) _ Two of Japan's three biggest airlines, Japan Airlines Co. and Japan Air System Co., are planning to merge in a deal that would give them nearly half of the domestic market and allow them to compete better for international customers.

Japan Airlines, the biggest Japanese airline, and No. 3 JAS plan to form a holding company next September as a prelude to combining their businesses by 2004.

``We will become a globally competitive carrier and be able to offer better services,'' JAL President Isao Kaneko told reporters on Monday.

A merger would bring together complementary operations _ JAL with its strength in international flights and JAS in domestic flights, said Kaneko and his JAS counterpart Hiromi Funabiki.

The proposed combination would be the first major Japanese airline overhaul in 30 years _ highlighting how the Sept. 11 terrorist attacks have forced even insular Japanese carriers to rethink their business.

Travel has plummeted since the attacks. Japanese airlines have had to temporarily stop some flights _ particularly to the United States.

Domestically, Japan Airlines, also known as JAL, controls 25 percent share of the Japanese market but that is only half that of Japan's No. 2 All Nippon Airways.

Together, JAL and JAS would control 48 percent of the domestic market.

The companies expect the deal will enable them to save costs, improve safety, share facilities and promise stable employment to workers at both companies.

JAL and JAS said the ratio of their stakes, the name of the new company and the location of its headquarters were still undecided. The agreement still needs the approval of the companies' shareholders in meetings expected next spring.

The plans were announced after Tokyo stock trading finished. But Japan's leading business daily, the Nihon Keizai, reported on the expected merger Sunday.

Japan Airlines rose nearly 4 percent to 297 yen ($2.50), while JAS shares gained 3 percent to 3,750 yen ($31). Rival All Nippon Airways ended down 2 percent at 311 yen ($2.60).

Funabiki said the time had come for Japanese carriers to change.

``We are entering times of global economic change and future uncertainties,'' he said. ``International competition is sure to intensify, and we need to build our long-term vision.''

JAS, a regional carrier formed by a 1971 merger, has been hard hit by Japan's decade-long economic slump. JAL owns an 8.25 percent share of JAS, and the two companies already cooperate on cargo services, domestic shuttle service and other cost-saving ventures.

Last month, JAL slashed its full-year earnings outlook to a group loss of 40 billion yen ($332 million), citing the impact of the terrorist attacks. It had recorded a 40 billion yen ($332 million) profit for fiscal 2000 and had forecast a 25 billion yen ($208 million) profit.

ANA, which posted a profit of 40 billion yen ($332 million) for the previous fiscal year ending in March 2001, forecasts a 55 percent drop in profits to 18 billion yen ($149 million) for fiscal 2001.
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