12-Jan-2010 10:45 AM

JAL to reportedly file for bankruptcy next week; significant job and network cuts to follow

Japan Airlines (JAL) and the Japan Government reported the following developments on 11/12-Jan-2010, as the carrier reportedly plans to file for bankruptcy on 19-Jan-2010 and embark on a government-led turnaround:

  • Funding: The state-backed Enterprise Turnaround Initiative Corp of Japan (ETIC) reportedly plans to arrange for JPY800 billion (USD8.7 billion) in capital to be made available to JAL to supports its ongoing operations (Yomiuri Shimbun, 12-Jan-2010). ETIC has reportedly calculated that almost JPY1.4 trillion (USD15.2 billion) will be required to rebuild the airline;
  • International partners: ETIC will reportedly decline cash offers from Delta Air Lines and American Airlines, due to concerns that giving foreign carriers an ownership stake in the company would complicate the restructuring process (Kyodo News, 11-Jan-2010). However, JAL will seek greater cooperation with a US partner airline in the future. Delta (Sky Team alliance) is reportedly the favoured carrier for this arrangement as it would result in projected annual benefits of JPY17.2 billion (USD187 million) or three times the size of the expanded alliance with American Airlines, with an alliance switch reportedly planned for Apr-2011 (Kyodo News, 11/12-Jan-2010). Delta Air Lines stated it still intends to pursue a partnership agreement with JAL, to expand its Asian route network (The Atlanta Journal-Constitution, 11-Jan-2010).
    Separately, American CEO, Gerard Arpey, stated JAL has not rejected its investment bid, with the two sides remaining in direct talks, reiterating that even if JAL enters bankruptcy, American would remain willing to participate in its restructuring (AP, 11-Jan-2010). Meanwhile, Qantas has joined a oneworld alliance delegation in a final attempt to keep JAL within the alliance, with the members to hold a press conference in Tokyo today to reinforce their support for the airline (The Age, 11-Jan-2010);
  • Shares: JAL’s shares will reportedly be delisted as the carrier files for bankruptcy protection (Asahi Shimbun, 11-Jan-2010);
  • Industrial relations: JAL will reportedly eliminate approximately 15,600 jobs, equal to a third of its work force, during the three fiscal years through Mar-2013 (Kyodo News, 11-Jan-2010);
  • Network: The carrier will reportedly eliminate services to 47 unprofitable domestic and international routes, as part of restructuring efforts, including 12 unannounced domestic and 14 international route cancellations (Nihon Keizai, 11-Jan-2010);
  • Government support: The Japanese Government is expected to release a statement this week (today at the earliest) stating it would put its full support behind the rehabilitation of JAL to avoid increasing anxiety among JAL's customers and clients (Kyodo News, 11-Jan-2010);
  • Outlook: JAL will reportedly seek to restructure within three years after filing for bankruptcy (Nikkei English News, 12-Jan-2010). [more - Perspective]

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