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JAL considering lump-sum pension payments; 2009 losses to be worse-than-expected

22-Oct-2009 10:28 AM

Japan Airlines (JAL) and its rehabilitation taskforce are reportedly considering the following measures, as part of its restructuring efforts (Reuters/The Yomiuri Shimbun/Bloomberg/Kyodo News/Asahi Shimbun, 22-Oct-2009):

  • Debt waivers: JAL’s Rehabilitation Task Force has reportedly requested the Development Bank of Japan to provide more than JPY50 billion (USD550 million) in debt waivers and debt-for-equity swaps, according to The Nikkei - reportedly a smaller amount than previously suggested. The taskforce is also reportedly requesting Mizuho Financial Group Inc unit, Mizuho Corporate Bank, to agree to nearly JPY50 billion yen in debt waivers and debt-for-equity swaps;
  • Airport fees and charges: JAL’s lenders are reportedly urging the task force to lobby the government to reduce Japan's airport usage fees and other charges. JAL pays an estimated JPY100-120 billion p/a in landing fees, airport facility fees and fuel taxes, according to The Nikkei;
  • Employees: In a new proposal for corporate pensions, the task force reportedly included a proposal to reduce the carrier's future financial burden by enabling retired employees to receive their corporate pensions in a lump sum (at the current interest rate) and then be removed from the pension fund. The taskforce also reportedly plans to reduce, in principle, the annual interest rate of defined benefits from a guaranteed 4.5% to 1.5%, according to The Yomiuri Shimbun;
  • Subsidiaries: JAL reportedly plans to reduce its 90.7% interest in JAL Hotels Co, although the carrier intends to remain the majority shareholder in the company, according to The Nikkei;
  • International partners: American Airlines is reportedly planning to lead other members of the oneworld alliance in investing in JAL, according to Bloomberg reports. Executives from American and other oneworld carriers, including Qantas, reportedly met with JAL last month. Qantas CEO, Alan Joyce, separately stated the carrier had “absolutely no plans” to invest in JAL, but is instead working with its partners to retain JAL in the alliance. 
  • Financial Outlook: JAL may reportedly post a loss of as much as JPY500 billion (USD5.5 billion) in the 12 months ending 31-Mar-2010, after restructuring charges, eight times greater than the carrier’s forecast, according to the Yomiuri Shimbun;
  • Route rationalisation: Reportedly plans to reduce Tokyo Narita-London frequency from twice daily to daily from 07-Dec-2009, according to Kyodo News. JAL is reportedly expected to announce the planned cutback in early Nov-2009, as part of the ongoing review of international operations to revive its profitability. The move would leave JAL with no European route operated with more than a daily frequency, except for codeshare routes.