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Japan Airlines bankruptcy filing reportedly looming

11-Jan-2010 11:14 AM

Japan Airlines (JAL) and the Japan Government reported the following developments on 10/11-Jan-2010:

  • Bankruptcy: JAL is reportedly likely to file for bankruptcy on 19-Jan-2010, as part of a state-led restructuring (Reuters, 11-Jan-2010). The Enterprise Turnaround Initiative Corp of Japan (ETIC) will reportedly establish a credit line of more than USD6.5 billion along with the state-owned Development Bank of Japan to ensure the carrier remains operational once a bankruptcy is announced;
  • Lenders: JAL’s largest lenders, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group, are reportedly now prepared to proceed with the proposed court-led reconstruction, after initially rejecting the plans (Nikkei Shimbun/Bloomberg, 11-Jan-2010). The state-owned Development Bank of Japan has already agreed to the bankruptcy plan;
  • Foreign partners: Delta Air Lines and American Airlines will reportedly not be invited to invest capital into JAL, at least initially, as it could "complicate" the carrier’s restructuring efforts, although the potential for a business tie-up with the US airlines remains (Reuters/Bloomberg/Financial Times, 11-Jan-2010). Separately, American Airlines stated it may reduce capacity on US-Japan routes if JAL switches to an alliance with Delta, with the carrier commenting, “it’s hard to imagine we could sustain operations without JAL” (Bloomberg, 08-Jan-2010);
  • Pensions: JAL is reportedly considering a move to dissolve its pension fund for retirees if they reject the proposed reductions in pension benefits (Kyodo/Bloomberg/Yomiuri Shimbun, 10-Jan-2010). Should the pension programme be dissolved, benefits for JAL's retirees would reportedly be reduced by approximately 60%, rather than by approximately 30% as currently planned. The airline would also reduce future pension benefits to current employees by 53%. The pension fund reportedly has USD3.2 billion in assets at present. The carrier is reportedly facing difficulty securing the necessary approval by two-thirds of its retirees (Kyodo, 10-Jan-2010). If JAL fails to gain approval for the 30% reduction by the 12-Jan-2010 deadline, the company would extend the deadline until 22-Jan-2010. Approximately 45% of former employees had accepted the offer as of 09-Jan-2010; 
  • Possible delisting: ETIC is reportedly considering delisting of the carrier through a 100% capital reduction as one option (Yomiuri Shimbun, 09-Jan-2010). Tokyo Stock Exchange allows firms to stay listed if they apply for bankruptcy protection if certain conditions are met. To remain listed, the company must have market value of more than JPY1 billion (USD10.8 million) and the level of the capital reduction must be below 100%;
  • Liability: JAL’s liabilities will reportedly exceed assets by more than JPY800 billion (USD8.7 billion) as at 31-Mar-2010 (Yomiuri Shimbun, 09-Jan-2010);
  • Network: ETIC is reportedly considering extensively reducing JAL’s international operations, as part of its rehabilitation efforts (Kyodo, 08-Jan-2010);
  • Executive News: Japan Government is reportedly considering Kazuo Inamori, the honorary Chairman of Kyocera Corp, as JAL's new CEO (Reuters, 11-Jan-2010);
  • International reassurance: The Japanese Government reportedly plans to explain through diplomatic channels the situation at JAL to approximately 35 nations the carrier serves (Yomiuri Shinbum, 11-Jan-2010). The government, aiming to ease credit worries internationally, will also reportedly issue a statement stating it fully supports JAL's flight operations when the carrier files for bankruptcy;
  • Service disruption: Japanese Prime Minister, Yukio Hatoyama, stressed that that government would work to prevent disruption to flights, commenting, “we need to think about customers. We have worked so far to avoid disruptions to flights as much as possible and we will continue to try to do so” (Reuters, 11-Jan-2010).