18-Jan-2010 11:23 AM

JAL bankruptcy likely on 19-Jan-2010; JAL to partner with Delta?; Additional USD1.6 bill in funding

Japan Airlines (JAL) and the Japan Government reported the following developments on 15-18-Jan-2010:

  • Debt:  JAL’s creditors will reportedly waive JPY358.5 billion (USD3.9 billion) of the JPY710.3 billion (USD7.8 billion) in loans provided to the airline (Yomiuri Shimbun, 16-Jan-2010). Under the airline’s rehabilitation plan, 32 lenders will relinquish claims to 83% of unsecured loans, while the Development Bank of Japan, Mizuho Corporate Bank, Tokyo-Mitsubishi UFJ Bank and Sumitomo Mitsui Banking Corp would reportedly renounce claims to JPY256 billion (USD2.8 billion). The securities held by Sumitomo Trust and Banking Co, Norinchukin Bank and Shinsei Bank have reportedly been deemed worthless, while Yokohama Bank, Higo Bank and Hyakujushi Bank will reportedly not be required to waive any of their loans because they were secured;
  • Foreign partners: JAL and Delta Air Lines have reportedly reached a basic agreement on 15-Jan-2010 on a comprehensive programme involving JAL moving from oneworld to SkyTeam (Yomiuri Shimbun/Kyodo, 15-Jan-2010). The switch would reportedly proceed by Apr-2011. Enterprise Turnaround Initiative Corp of Japan (ETIC) has estimated that an alliance with Delta would give JAL an annual benefit of JPY17.2 billion (USD189 million) - three times more than an expanded alliance with American would offer. JAL and Delta are reportedly expected to file with the US Department of Transportation for antitrust immunity for jointly operating trans-Pacific services by 15-Feb-2010. However, JAL denied the report, stating “we haven’t reached a decision” (Bloomberg, 16-Jan-2010);
  • Loans: The Development Bank of Japan (DBJ) has procured JPY145 billion (USD1.58 billion) in funds remaining from a JPY200 billion (USD2.2 billion) credit line from the state-owned bank, to tide it over until its court-led rehabilitation commences, with the carrier commenting, “we are preparing so we can make the necessary outlays when needed” (The Asahi Shimbun, 16-Jan-2010);
  • Bankruptcy Filing: Japan’s Transport Minister, Seiji Maehara, stated 19-Jan-2010 is ‘X day’ for JAL, with ETIC to make a final decision on its restructuring plan, which will reportedly include a bankruptcy filing on the same day (Financial Times, 16-Jan-2010). A bankruptcy filing would make JAL one of Japan’s largest corporate failures;
  • Maintaining normal operations: Japan Prime Minister, Yukio Hatoyama, reiterated that JAL would continue to operate as normal during the restructuring period (Bloomberg, 15-Jan-2010);
  • Cost reduction programme: JAL reportedly plans to reduce operating expenses by 25% in the three years to Mar-2013 (The Nikkei, 17-Jan-2010). The company will reportedly reduce fuel fees by revising futures contracts and using smaller aircraft. The carrier targets JPY115.8 billion (USD1.3 billion) in operating profit in the 12 months to Mar-2013, compared with an estimated loss of JPY265.1 billion (USD2.9 billion) in the current fiscal year;
  • Fuel futures contracts: JAL will reportedly cancel its fuel futures contracts when put under bankruptcy protection, as the carrier’s future contract sellers would then be subject to reductions (The Yomiuri Shimbun, 18-Jan-2010);
  • International operations: ANA reportedly stated it has no intention of taking over JAL’s international routes in their entirety (Nikkei Business Daily, 15-Jan-2010). However, the carrier reportedly stated it has interest in some individual routes now operated by JAL; 
  • Executive appointments: ETIC has reportedly shortlisted Masaru Onishi, the President of Japan Air Commuter Co, a JAL subsidiary, as JAL COO (Kyodo, 15-Jan-2010). Several other candidates have also been shortlisted.

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