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JAL bankruptcy expected today

19-Jan-2010 11:02 AM

Japan Airlines (JAL) and the Japan Government reported the following developments on 18/19-Jan-2010:

  • Bankruptcy filing: Japan Airlines and two of its core subsidiaries, Japan Airlines International Co and JAL Capital Co, are expected to file for bankruptcy protection today (The Yomiuri Shimbun, 19-Jan-2010). The bankruptcy filing will reportedly be immediately followed by a restructuring plan developed by the Enterprise Turnaround Initiative Corp (ETIC), while the Japanese Government will reportedly offer assurances of support for the airline's rehabilitation and ongoing operations (Nikkei Daily, 18-Jan-2010);
  • Executive news: Naoyuki Morita, a former Vice Chairman at Kyocera Corp, may reportedly be named to a senior management position at JAL by ETIC (Nikkei Daily, 19-Jan-2010);
  • Rehabilitation: The main pillars of the rehabilitation plan are:
    • Eliminating 15,700 jobs (approximately one-third of the group's workforce)
    • Reduction of subsidiaries from 110 to 57 through such means as liquidating or selling unprofitable or non-core businesses  (The Yomiuri Shimbun, 19-Jan-2010).
    • The measures are aimed at returning the carrier to profit in the financial year to the end of Mar-2012;
  • Foreign partner: JAL will reportedly decide by the end of Jan-2010 to tie up with Delta Air Lines and switch to the SkyTeam Alliance from oneworld in Apr-2011 (Kyodo News, 18-Jan-2010). Meanwhile, KLM stated talks involving Air France-KLM and Delta on the future of JAL are “going well” and continuing in a “positive mood” (AFP, 18-Jan-2010). Delta added that its negotiations with JAL are “ongoing” (Bloomberg, 18-Jan-2010);
  • Business partners: Tokyo Shoko Research stated JAL Group has 13,334 business partners in Japan that would be affected by the restructure, of which 2,910 of the firms have direct business relationships and 10,424 companies, including second tier contractors, have indirect business relations;
  • Bondholders: JAL’s bondholders may recover 25% of face value if the carrier files for bankruptcy as anticipated, according to the median forecast of five analysts surveyed by Bloomberg. JAL’s JPY67 billion (USD737 million) of bonds will likely default in what would be the nation’s sixth largest bankruptcy, according to the report.