16-Nov-2009 1:13 PM

JAL has record half-year loss; favours American Airlines and oneworld

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

  • Bridging loans: JAL Executive Officer, Yoshimasa Kanayama, stated the airline is currently seeking a JPY125 billion (USD1.4 billion) short term bridging loan from its banks, after reporting a first-half net loss double the size of its previous full-year prediction (Reuters/Bloomberg, 14-Nov-2009). The carrier requires the funds by the end of the Mar-2010 financial year;
  • Mediated Debt Restructuring: JAL applied for mediated debt restructuring on 13-Nov-2009 (Reuters/The Asahi Shimbun, 14-Nov-2009). The alternative dispute resolution (ADR) is an out-of-court arbitration process, and, if the application is accepted, would enable the airline to postpone its debt repayment obligations temporarily and avoid using bridge loans from Development Bank of Japan for debt repayments;
  • International network: JAL President, Haruka Nishimatsu, stated JAL remains too exposed to financial losses associated with its international passenger route network, with the carrier planning to further reduce capacity on these services (Trend, 14-Nov-2009). The carrier reported a 43% year-on-year reduction in international sales in 1HFY2010, with domestic sales down 12% (Kyodo, 14-Nov-2009). International yields were down by 37.1% in the most recent quarter;
  • International partners: oneworld alliance stated it is developing incentives to help keep JAL in the alliance (Bloomberg, 14-Nov-2009). Each carrier within the alliance is developing individual offers, which will sent to the carrier and the Japanese government as one combined proposal. Separately, JAL President, Haruka Nishimatsu, stated that staying in oneworld would “make more sense,” and it would be “easy” to seek antitrust immunity to deepen ties with American Airlines (Bloomberg, 14-Nov-2009).  Mr Nishimatsu added that the company needs to make an ''urgent decision'' by the end of the year on its capital tie-up talks with the foreign air carriers (Kyodo News, 13-Nov-2009);
  • Credit rating: Standard & Poor's Ratings Services lowered its longer-term corporate credit ratings for Japan Airlines Corp and Japan Airlines International Co by two notches from CCC to CC (Kyodo News, 13-Nov-2009);
  • Outlook: JAL stated it would not provide a forecast for FY2010, after reporting its worst first half loss since its merger with Japan Air System in 2002, with JAL Executive, Yoshimasa Kanayam, stating, "it is difficult to have a forecast, and we would like to avoid causing misunderstanding, so we refrained from posting the forecast”  (Kyodo, 14-Nov-2009);
  • Executive news: JAL President, Haruka Nishimatsu, reportedly hinted that the JAL management team may step down after the company establishes a rehabilitation plan and outlines a road map for its feasibility (Kyodo, 14-Nov-2009).

oneworld: “There is a concerted, coordinated effort by the oneworld carriers to put together a package of incentives. The package is very much an effort to persuade them to stay…[oneworld’s proposal] is not specific to a capital infusion, although there is an element of that,” John McCulloch, Managing Partner. Source: Bloomberg, 14-Nov-2009.

Japan Airlines: “I feel a sense of responsibility very keenly. We want to come up with a recovery plan that the public will understand,” Haruka Nishimatsu, President, Source: Bloomberg, 14-Nov-2009.

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