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JAL to receive loans from ETIC; debt claims to be relinquished; subsidiaries to be closed

15-Jan-2010 11:16 AM

Japan Airlines (JAL) and the Japan Government reported the following developments on 14/15-Jan-2010:

  • Loans: JAL will reportedly receive JPY600 billion (USD6.6 billion) in bridging loans from Enterprise Turnaround Initiative Corp of Japan (ETIC) and the Development Bank of Japan, under a proposed turnaround plan (Bloomberg, 14-Jan-2010). DBJ has also reportedly extended the final JPY145 billion (USD1.6 billion) of an existing JPY200 billion (USD2.2 billion) credit line to the carrier on 14-Jan-2010;
  • Investors: Under ETIC’s bankruptcy protection plans, 32 banks, insurance companies and investment funds will each reportedly be required to relinquish claims up to 83% of the unsecured funds lent to JAL (The Yomiuri Shimbun, 15-Jan-2010). The amount totals JPY358.5 billion (USD3.9 billion) of the JPY710.3 billion (USD7.8 billion) lent to JAL. The Development Bank of Japan and three 'megabanks' (Mizuho Corporate Bank, Tokyo-Mitsubishi UFJ Bank and Sumitomo Mitsui Banking Corp) would reportedly be required to renounce claims to JPY256 billion (USD2.8 billion), or more than 70% of the total amount of waived loans. Meanwhile, Yokohama Bank, Higo Bank and Hyakujushi Bank are not required under the plan to waive any loans to JAL, as all funds lent were secured by collateral. ETIC will, however, reportedly request these banks to sell their credits, exchange them for stocks or waive them outright;
  • Subsidiaries: ETIC reportedly plans to close 27 international branch offices and halve the number of subsidiaries to 57 (The Yomiuri Shimbun, 15-Jan-2010). Of its 110 subsidiaries, JAL will reportedly sell 24, while liquidating 15 firms and eliminating a further 14 companies by integrating them into other entities;
  • Revenue outlook: JAL reportedly plans to reduce its sales outlook for FY2012 by more than 30% from FY2008 levels (The Yomiuri Shimbun, 15-Jan-2010);
  • Government support: Japan’s Transport Minister, Seiji Maehara, stated JAL’s turnaround plan would allow the government to recover its financial support in the “near future” (Bloomberg, 15-Jan-2010);
  • Effect on small businesses: A JAL bankruptcy filing could adversely impact small and midsized firms, which account for approximately half of JAL’s 2,910 Japanese corporate clients, according to Tokyo Shoko Research Ltd (Business in Asia Today, 14-Jan-2010);
  • Executive news: ETIC is reportedly considering appointing the 54-year-old President of Japan Air Commuter Co, a JAL subsidiary, as JAL COO (Kyodo, 14-Jan-2010);
  • International partners: Delta Air Lines stated it sees no obstacles to obtaining antitrust immunity (ATI) for its potential alliance by Oct-2010, when Haneda Airport’s fourth runway will be inaugurated (dealReporter, 14-Jan-2010);
  • Shares: JAL’s shares gained 14.3% yesterday, as more than 1 billion JAL shares changed hands, a single-day record for a Tokyo Stock Exchange-listed company, setting a new record following the previous day's 822 million shares being traded (Financial Times, 14-Jan-2010). JAL trading alone accounted for nearly one third of the 3.2 billion shares traded on the Tokyo Stock Exchange's First Section. The gains were fuelled by speculators and travellers acquiring stock to obtain discount airfares, which would likely more than offset losses on the investment (JAL offers a half-price domestic flight per year to owners of 1,000 shares, and more to larger investors. Its larger shareholders - those owning more than 210,000 shares - can take more than 100 half-price trips p/a). Meanwhile, Tokyu Corp sold its entire 2.94% stake in the carrier, booking a JPY9 billion (USD98 million) loss on the sale (Reuters, 14-Jan-2010). Meanwhile, a number of life insurance companies holding large numbers of JAL stock as well as institutional investors have been selling ther shareholdings over the past nine months, including Nippon Life Insurance Co, Fukoku Mutual Life Insurance Co and AXA Life Insurance Co (The Yomiuri Shimbun, 15-Jan-2010).

Delta Air Lines: “We feel that there is no issue here as to whether or not JAL and Delta together qualified for ATI and approval from the US Department of Transportation (DoT). We anticipate the decision prior to October is within reach,” Jeffrey Shane, Legal Advisor. Source: dealReporter, 14-Jan-2010.