Japan Airlines secures USD1.1 billion government loan to prevent collapse; shares hit record low

Japan Airlines (JAL), based on the "Measures for the Revitalization of JAL" (an arrangement by the related five Ministers dated 10-Nov-2009), submitted (24-Nov-2009) an application to the Minister of Land, Infrastructure, Transport and Tourism for confirmation that an "event which would interfere with our flight operations could occur." The Minister confirmed that, "in case of the occurrence of such event, convenience for users and corporate activities would be significantly affected". With this formal step in place, the loan agreement necessary to allow continuance of JAL's operations was executed between the Development Bank of Japan and JAL on 24-Nov-2009.[more]

As part of the agreement, JAL will receive up to JPY100 billion (USD1.1 billion) in emergency bridge loans. It is also expected to be granted an additional JPY25 billion in loans by three private creditor banks to purchase new aircraft (Japan Times/Bloomberg/Kyodo/AP, 24-Sep-2009). JAL is also currently seeking financial support from Enterprise Turnaround Initiative Corp of Japan (ETIC), a corporate turnaround body, but requires the short-term financing to avoid an imminent cash shortage; ETIC is not expected to decide on a broader, longer-term financial package before Jan-2010.

Japan Transport Minister, Seiji Maehara, meanwhile, emphasised that a full recovery for the carrier is possible, stating, "I still believe (JAL) can definitely rebuild itself if it carries out drastic restructuring, reviews its routes, replaces (aging) aircraft and resolves the pension issue" (Japan Times/Bloomberg/Kyodo News, 24-Sep-2009). Mr Maehara added that it was in the best interests of the company to develop a clear road map for pension reforms if the carrier wants a broad scale financial intervention by a state-backed corporate body to be considered. JAL, on 23-Nov-2009, urged retirees and employees to accept an average 40% reduction in their pension payout.

Japan Government: "If public funds are going to be injected, it would be most difficult to obtain the public's understanding if their taxes are going to be used to protect (JAL's) pensions. It is important first for JAL, along with its retirees, to make independent efforts to decide on a firm pension policy," Seiji Maehara, Transport Minister. Source: Xinhua, 24-Sep-2009.

Also on Tuesday, JAL shares plunged to a record low closing price of JPY87 on the Tokyo Stock Exchange, on growing investor concern that the carrier could face bankruptcy. The slump was also fuelled by news that trading house, Mitsui & Co, sold all of its 11.7 million common shares (equating to 0.43% of JAL stock) in 1HY2010, raising speculation that other shareholders will follow suit (Japan Times/Bloomberg, 24-Sep-2009). The company still holds 80 million preferred shares in JAL. Railway firm, Tokyu Corp, reiterated that it has not yet decided whether it would sell down its 2.9% stake in JAL, following media reports that it might (Bloomberg, 24-Nov-2009).