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JAL today offers pension reduction plan; bridge loan extended; threat of USD1bn fuel hedge loss

23-Nov-2009 11:34 AM

Japan Airlines Corp (JAL) is reportedly considering the following actions as part of its restructuring planning:

  • Pensions: May reportedly alter a proposed reduction in pensions to gain approval from retirees, with plans to propose a reduction of an average of roughly 40%, according to The Nikkei Shimbun and The Mainichi Shimbun (Bloomberg/Reuters, 22-Nov-2009). The plan reportedly involves a reduction in pension payments to retirees of 30% on average, and a reduction for current employees of a weighted average of 50%. JAL President, Haruka Nishimatsu, will reportedly present the proposal at a meeting with retirees in Tokyo today (23-Nov-2009). The Committee to Consider the Revision of JAL’s Pension Scheme has separately reportedly stated it would reject any proposal that reduces payments by more than 50%, with more than a third of retirees prepared to vote down such a plan. JAL needs at least two-third of former employees to approve any reductions;
  • Debt repayment: At a meeting of creditors on 20-Nov-2009 JAL reportedly gained approval for a debt payment moratorium under the Alternative Dispute Resolution (ADR) scheme (Reuters/Kyodo, 20-Nov-2009). State-owned Development Bank of Japan and other creditors also reportedly agreed a bridge loan of JPY126 billion to be extended to the carrier would be given priority rights in the case of bankruptcy. The creditors also reportedly agreed to suspend repayments while the carrier is seeking out-of-court restructuring;
  • Derivative transactions: JAL may reportedly have to pay approximately JPY100 billion (USD1.1 billion) to settle derivatives transactions, according to the Yomiuri Shimbun (Reuters, 20-Nov-2009). However, JAL has reportedly denied the report. JAL has reportedly contacted counterparties related to the contracts and believes it has their assurances it does not have to settle;
  • International partners: Standard & Poor’s Ratings Services stated Delta and SkyTeam’s proposal to JAL, including USD500 million of capital from SkyTeam, a USD300 million revenue guarantee and USD200 million of asset-backed funding, would not affect Delta’s credit ratings or outlook (Atlanta Journal-Constitution, 20-Nov-2009). However, S&P stated that once a US-Japan Open Skies treaty is completed, antitrust immunity for Delta and JAL “could prove more challenging than a similar request from American and JAL”, as Delta would have authority to fly routes to and beyond Japan, while American would not. Meanwhile, Japan's Minister of Land, Infrastructure, Transport and Tourism, Seiji Maehara, stated he has not heard from American Airlines on the carrier’s intention to provide financial support to JAL (Dow Jones, 20-Nov-2009). JAL has been in talks with both American and Delta Air Lines on a possible alliance;
  • Bonuses: JAL is reportedly expected to cancel year-end bonuses at its roughly 100 subsidiaries, starting next week, according to the Nikkei Daily (Reuters, 20-Nov-2009).