30-Oct-2009 8:33 AM

JAL requests support from Enterprise Turnaround Initiative Corporation of Japan

Japan Airlines (JAL), its Government-appointed Rehabilitation Task Force and the Japanese Government, are reportedly considering the following measures, as part of its restructuring efforts (Reuters/AP/Kyodo/Bloomberg/Japan Times/New York Times, 29-30-Oct-2009):

  • Task Force submitted final restructure plan to Transport Minister, Seiji Maehara, on 29-Oct-2009: Concluded that if appropriate measures are taken, JAL could recover, adding that the carrier needs to reduce the number of aircraft and other equipment, reduce its work force size, rationalise its network and slash its legacy costs, which include pension payments. The Task Force also reportedly concluded that a revival of JAL would require a significant amount of public funding in the form of both capital and loans;
  • Enterprise Turnaround Initiative Corp (ETIC) involved: JAL requested (29-Oct-2009) the ETIC initiate preliminary consultation to decide whether it would support the restructuring of the struggling airline. The ETIC, which can draw on up to JPY1.6 trillion (USD17.8 billion) in state-guaranteed funding, will decide on whether it can help JAL after studying its assets and its restructuring plan, in a process that could reportedly take a few months. Mr Maehara reportedly stated the ETIC would “start from zero” in its assessment of JAL. JAL President, Haruka Nishimatsu, stated the company is committed to work closely with the ETIC and follow its advice to produce a rehabilitation plan as quickly as possible, stating, “we'll do whatever it takes to reconstruct our operation under a plan that can be widely accepted” [more];
  • No decision as yet on provision of Public Funding: Japan’s Finance Minister, Hirohisa Fujii, stated the government would not make a decision today regarding potential public support for JAL. He added that a plan put forward by a the Task Force was an option, but added that the government also needed to devise a plan that would gain public support for a bailout of the struggling carrier;
  • Pension laws: The government is reportedly considering a new law forcing the reduction of pension benefits to JAL retirees, if it receives public funds, according to the Nikkei Business Daily. It has been reportedly by the Japanese media that JAL may need approximately JPY800 billion (USD8.8 billion) for future retirement and pension payments, double the balance in its corporate pension system. The government reportedly plans to submit legislation to parliament next year, according to The Nikkei;
  • Creditor involvement: Another proposal is for the state-owned Development Bank of Japan, currently JAL’s largest creditor, to reportedly loan a further JPY200 billion (USD2.2 billion) in 2009 and for the government to guarantee the loans once the legislation is passed, according to The Nikkei. The proposal would also likely to include plans to support the overall aviation industry, such as a reduction in airport landing fees;
  • JAL important to the Japanese economy: Mr Maehara told the Japanese Parliament that reviving JAL is very important to the Japanese economy. He stressed that JAL would need to make aggressive cutbacks to receive fresh public funds, and also criticised previous bailouts, labelling them "mere stopgap measures". He added that his government was committed to bringing about a more comprehensive turnaround than the previous government;
  • Bankruptcy "not an option": JAL’s turnaround Task Force stated it did not propose JAL resort to legal measures to eliminate its liabilities, such as applying for bankruptcy under the corporate rehabilitation law, stating it would badly damage the company's reputation and cause too much risk for the carrier. Head of the Task Force, Shinjiro Takagi, explained, "many JAL operations involve international dealings on credit, and JAL's business directly depends on (reactions of) passengers. So the risk to its reputation would be too big".

Japan Government: "JAL will need huge money, huge public money, through both capital and loans. We have decided the ETIC will be suitable for the public money," Shinjiro Takagi, the Head of a Transport Ministry Taskforce. Source: Reuters, 29-Oct-2009.

Japan Government: "JAL's operation covers more than a half of Japan's sky and considering its global network and how it connects regional economies, its revival is extremely important for Japan's economy as well as for our policy," Seiji Maehara, Transport Minister. Source: Reuters, 29-Oct-2009.

Japan Government: “There is room for great reform at JAL. There is still great potential for growth,” Kazuhiko Toyama, Deputy Leader of the task force. Source: New York Times, 29-Oct-2009.

Japan Government: "In order to turn around the JAL group, a considerable amount of funds and strong corporate governance will be necessary,’’ Seiji Maehara, Transport Minister. Source: Kyodo News, 29-Oct-2009.

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