30-Dec-2009 11:07 AM

JAL bankruptcy is reportedly the preferred restructuring option

Japan Airlines and the Japan Government reported the following developments in its restructuring efforts on 29/30-Dec-2009:

  • Restructuring through bankruptcy: JAL's restructuring through bankruptcy proceedings is reportedly the state-affiliated Enterprise Turnaround Initiative Corporation’s (ETIC) preferred option (Asahi Shimbun, 29-Dec-2009). ETIC has reportedly proposed the option to the airline’s main creditors, although they had not necessarily agreed with such an option (Financial Times, 29-Dec-2009). The ETIC is expected to make a final decision on whether to support JAL with loans and investments in Jan-2010;
  • Labour unions: Japan Airlines Workers’ Union stated it believes a “change in the pension system is necessary for JAL’s restructuring”, indicating support by the union for a proposal by the carrier to reduce pensions for current employees (Asahi Shimbun, 29-Dec-2009). Members of three unions that represent approximately 65% of employees reportedly support the plan. The airline requires the support of two-thirds of retirees and employees to back the reduction, part of wider cost-cutting plans designed to return the company to profit;
  • Commercial transactions: JAL's fuel purchases and other commercial transactions will reportedly be backed by a Japanese Government-affiliated company, if the carrier files for bankruptcy (Nikkei English News, 30-Dec-2009);
  • Payment protection: JAL has had Payment Protection cover against airline failure withdrawn by some insurance underwriters (Alternative Airlines, 29-Dec-2009).