11-Nov-2009 10:49 AM

JAL expects operating loss of over USD1 billion for 1H2010; Government considering state guarantees

Japan Government and Japan Airlines (JAL) reportedly announced the following developments related to the carrier’s restructuring efforts and financial position:

  • Financial results: JAL is reportedly expected to post an operating loss of more than JPY90 billion (USD1 billion) in the six months ended 30-Sep-2009, according The Nikkei (Reuters/Bloomberg, 11-Nov-2009). In the July-September quarter, passenger numbers on domestic services were reportedly down by 7% to slightly more than 10 million, while those on international services were down 3% to approximately 3 million. Separately, Japan’s National Strategy Minister and Deputy Prime Minister, Naoto Kan, declined to comment on reports that JAL’s auditor would refuse to approve the carrier's earnings results (Reuters, 19-Nov-2009). Mr Kan added that he hopes the auditors understood the agreement the Government has made to support the struggling carrier;
  • Pension Funds: Japan’s Government is reportedly considering two options for reducing JAL’s high corporate pension benefits: make JAL reduce benefits to a more realistic level (which would involve more than two-thirds of JAL’s employees and retirees agreeing to the plan) or dissolve the pension programme entirely (this would reportedly involve declaring the company to be in a state of collapse, the only basis for not having to make up the pension reserve short fall) (The Yomiuri Shimbun, 11-Nov-2009). Separately, there have been reports that the government may consider legislation to prevent any potential public injection of funds into the carrier from being used to cover the carrier’s pension payments (Reuters, 10-Nov-2009);
  • ETIC: Minister Kan stated it may take approximately two months until Enterprise Turnaround Initiative Corp of Japan finalises the details of a JAL rescue plan (Dow Jones, 11-Nov-2009), again pushing back the timeline;
  • Cash position: JAL will reportedly run out of cash as early as this month, and needs approximately JPY100 billion (USD1.1 billion) in bridging loans (Reuters, 10-Nov-2009);
  • Bridging Loans: Transport Minister, Seiji Maehara, stated the government-backed Development Bank of Japan would independently provide bridging loans to the carrier, which currently has approximately JPY1 trillion (USD11 billion) in net debt and legacy pension costs (Dow Jones/Kyodo, 11-Nov-2009). The loan is expected to be provided without government guarantees "at first," but the Government is reportedly considering future guarantees. The Government also called on private creditor banks to take part in providing the short-term financing. According to Kyodo reports, private creditor banks, including Mizuho Corporate Bank, the Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp, are reportedly expected to agree to offer approximately JPY25 billion (USD279 million) in loans after obtaining a guarantee from the government-backed Japan Bank for International Cooperation;
  • Government support: Japan Government is reportedly considering a new framework to provide state guarantees under which JAL can apply for support from the Transport Ministry in situations where financial shortages would affect the continuation of its businesses (Kyodo News, 10-Nov-2009). Budget and legal arrangements will then be made to guarantee the funding following negotiations with related ministers;
  • Airport fees: The governernment is reportedly considering granting JAL a moratorium on the payment of airport landing fees (The Yomiuri Shimbun, 11-Nov-2009). The freeze would reportedly reduce the level of bridging loans required for immediate financing by “tens of billions of Yen”. JAL pays airport fees on a monthly basis, with this amounting to approximately JPY100 billion (USD1.1 billion) p/a;
  • International airline partners: Delta Air Lines is reportedly offering to cover the cost of moving JAL to its SkyTeam alliance, including any revenue shortfall caused by departing the Oneworld alliance (Dow Jones, 10-Nov-2009). American Airlines on 09-Nov-2009 reaffirmed its committment to JAL to retain JAL as a "valued partner and equal member within the oneworld group";
  • Executive News: Government officials overseeing the restructuring of JAL are reportedly considering removing its CEO, Haruka Nishimatsu (Dow Jones/Reuters, 11-Nov-2009). Other news reports, in the Nikkei Business Daily, have reported that Mr Nishimatsu is expected to step down in early 2010 to take responsibility for the airline's poor performance.

Japan Government: ''Behind this (government) agreement is the understanding that it is necessary, from the viewpoint of the Japanese public and the economy as a whole, to provide the bridge loans to carry out drastic reform,'' Naoto Kan, Deputy Prime Minister. Source: Kyoodo News, 10-Nov-2009.

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