Money Matters, Simplified.
Bankruptcy looming over Japan Airlines
by Jamie Anderson - January 10, 2010 - comments
Japan Airlines, burdened with debts of $16 billion (£10 billion), is expected to file for protection in a state-led rescue
Tokyo, January 10 -- Four of the largest banks to Japan Airlines Corp (9205.T) have agreed for the court-led reconstruction of Asia’s largest carrier.
The nod from Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and the state-owned Development Bank of Japan was received not withstanding the fact that a bankruptcy would mean these bankers will not be paid back a part of money the airline owns them.
Japan Airlines (JAL), part of the Oneworld Alliance, may now enter a court-led bankruptcy, akin to the Chapter 11 procedure, adopted in the United States.
Business alliance a better bet
The airline has other options. Delta Airlines (DAL.N), the world's biggest airline operator, has offered $1bn (£624m) for the group whereas Delta’s rival, American Airlines (AMR.N) has agreed to pay $1.4bn for JAL.
According to people familiar with the matter, JAL and the state-backed Enterprise Turnaround Initiative Corp. of Japan (ETIC) have decided to limit a probable coalition with either Delta or American to a business tie-up only.
The besieged airline as well as the entity that is sponsoring it have concluded that a capital tie-up at this stage would do more harm than good to JAL, which is already saddled with massive losses.
Right now, the priority for JAL is to expedite the implementation of the restructuring process under the aegis of the ETIC.
If the government approves the proposed plan, JAL could file for bankruptcy with the Tokyo District Court as early as Jan. 19.
“JAL can be reborn as an attractive company should it undergo decisive restructuring. It’s a positive for JAL if the reports on bankruptcy are true,” maintains Ryota Himeno, an analyst at Mitsubishi UFJ Securities Co.
Plunging stock of JAL
The Tokyo-based carrier is reeling in the wake of plummeting international traffic. As a cost cutting measure, the ailing airliner has asked its 9,000 retirees to accept a 30 percent cut in their payouts.
JAL intends to cut 13,000 jobs, or 30 percent of its work force, over the next three years and will slash as many as 50 routes both at home and abroad.
Since the beginning of 2009, JAL’s shares have lost approximately 70 percent of their value. The market capitalization of the company, which stood at a healthy $6 billion a year earlier, has crashed below $2 billion.
A legal bankruptcy is likely to take the share value to zilch.
"Legal bankruptcy would drop the stock to zero. Shareholders are fearing they will pay the price for JAL's failure," averred Mitsuo Shimiz, an analyst at Cosmo Securities in Tokyo.