TOKYO - Japan Airlines Corp is likely to choose Delta Air Lines as its overseas partner, ending its ties with American Airlines and the Oneworld alliance, Japan's Asahi newspaper reported on Friday.

JAL, Asia's largest carrier by revenue, strongly denied the report and said it was planning to make a decision early next month on whether to stick with American Airlines or defect to Delta and the rival SkyTeam airline group.

It is absolutely wrong to say that we are leaning either way on the alliance decision at this moment, said JAL spokesman Kojiro Waki.

JAL has decided that switching to Skyteam would allow it to more effectively restructure its operations while also offering it better growth prospects, the Asahi newspaper said without citing a source for the information.

American, along with other members of the Oneworld alliance and private equity fund TPG, has offered to invest $1.1 billion in JAL and wants closer business ties under an open skies treaty signed by the U.S. and Japan governments last week.

Delta has said that it and other SkyTeam members are ready to offer a total aid package of about $1 billion, including $500 million in equity. Delta has also said it may team with a fund to sweeten its proposal.

We are still in ongoing discussions with JAL and we continue to maintain that American Airlines' offer is superior to that of any other rival, said Carlo Niederberger, a public relations official representing American Airlines in Japan.

A Delta spokeswoman declined to comment.

JAL, weighed down by $15 billion in debt and struggling to cut a $3.7 billion pension shortfall, is seeking a bailout from a government-backed turnaround fund. The fund is expected to decide whether to inject capital into JAL next month.

ANTI-TRUST

Both U.S. airlines are keen to gain access to JAL's network to fast-growing Asian markets and a stronger foothold in Japan ahead of the expansion of the Haneda airport next year.

Delta has estimated JAL could gain $400 million in annual revenue by joining hands with the world's biggest carrier given that it transports several times the number of passengers on transpacific routes.

Takahiko Kishi, an analyst at Mizuho Investors Securities, said forging ties with Delta would offer greater scope for cutting costs but warned the move could prove risky.

With a move to SkyTeam the positive effects would not become visible for a year or so. The question is whether JAL can wait that long, Kishi said.

American has argued that JAL could lose $500 million in sales over a two-year transition period if it left Oneworld and that regulators would not approve anti-trust immunity for Delta and JAL under the open skies pact because SkyTeam would control the bulk of U.S.-Japan travel.

Delta says it believes it could receive anti-trust immunity, which allows airlines to work closely on pricing, scheduling and marketing to boost revenues and lower costs.

American has also argued that Delta would likely look to route more traffic through South Korean's Incheon International Airport, bypassing JAL and Japan. Delta is partners with Korean Air Lines Co in SkyTeam.

American doesn't have a hub in Japan or a hub in Korea that would compete for JAL's customers, siphoning important revenue and traffic from its network, American Airlines CEO Gerard Arpey told a news conference in Tokyo this week.

(Reporting by Mariko Katsumura and Nathan Layne; Editing by Chris Gallagher and Mike Nesbit)

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