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JAL bankruptcy filing could be made on 22-Jan-2010; could cost creditors USD7.6 billion

31-Dec-2009 11:29 AM

Japan Airlines and the Japan Government reported the following developments in its restructuring efforts on 30/31-Dec-2009:

  • Bankruptcy Procedures: JAL would reportedly file for protection from creditors under the Corporate Rehabilitation Law, with the Enterprise Turnaround Initiative Corp of Japan  (ETIC) becoming a sponsor of the airline (Nikkei English News, 30-Dec-2009). The proposal has reportedly already been presented to the government and JAL's lenders, with the ETIC reportedly already deciding on details of the move within the court. Meanwhile, JAL’s lendors and creditor banks have reportedly rejected the bankruptcy proposal, stating the protection would increase the airline’s losses and disrupt air travel (Yomiuri Shimbun, 30-Dec-2009). Transport Minister, Seiji Maehara, added that bankruptcy is not the only option for the carrier (Bloomberg, 30-Dec-2009);
  • Financials: Creditors of JAL are reportedly expected to incur losses of approximately USD7.6 billion if the carrier enters a bankruptcy process, accordingly to estimates reportedly submitted by ETIC to the carrier’s major creditors (Jiji Press, 30-Dec-2009). ETIC reportedly stated it expected a bankruptcy filing would be made on 22-Jan-2010. By ETIC's estimate, JAL reportedly has a negative net worth of approximately JPY700 billion (USD7.6 billion);
  • Credit line: Mr Maehara stated the government is making arrangements for an increase in a credit line set by the state-owned Development Bank of Japan, as part of its plan to revive the struggling carrier (Kyodo, 30-Dec-2009);
  • Commercial transactions: JAL's fuel purchases and other commercial transactions will reportedly be backed by the ETIC if the carrier enters bankruptcy proceedings (Nikkei English News, 30-Dec-2009). Overseas airport usage fees and insurance policy premiums will also be guaranteed. The decision aims to save JAL from credit challenges that could disrupt its domestic and international services;
  • Labour unions: JAL’s retirees and employees are expected to respond by 12-Jan-2010 as to whether they will accept proposed reduction in pension payouts (Nikkei, 30-Dec-2009).