Standard & Poor's Corp. said Wednesday it has upgraded its Bpi rating on Japan Air System to B-plus-pi, while maintaining the BB long-term rating on Japan Airlines, with which JAS will integrate its operations.

The outlook on JAL's BB rating is negative.

The U.S. credit-rating agency also affirmed the BB-minus-pi rating on All Nippon Airways, whose dominant position in the domestic aviation market is set to be challenged by the JAL-JAS alliance.

There is no outlook for the BB-minus-pi rating, because S&P does not provide them for ratings with pi, which stands for public information. It is made without a request by the company and based on public information.

S&P said the upgrade on the JAS rating reflects "the likely benefits from the planned merger with the operationally and financially stronger JAL."

The JAL rating was left unchanged "based on the expectation that JAS' weak balance sheet will not have a significant impact on the combined group's financial profile."

The decision contrasts with that of S&P rival Moody's Investors Service Inc., which lowered the senior debt rating on JAL to Ba1 from Baa3 earlier this month with a negative outlook, saying increasing price competition in the domestic market may lead to weaker cash flows at the company.

Moody's also raised the issuer rating on JAS to B1 from B2.

JAL and JAS are to integrate management under a joint holding company to be set up in October, and then reorganize their operations into several units by early 2004.

S&P said ANA's credit quality could worsen "without a drastic reorganization of its flight schedule and further restructuring of unprofitable businesses," due to the challenge posed by the JAL-JAS alliance.