13-Jan-2010 10:43 AM

JAL's creditor banks to approve bankruptcy plan; pension reductions approved: reports

Japan Airlines (JAL) and the Japan Government reported the following developments on 12/13-Jan-2010:

  • Bankruptcy proceedings: JAL is expected to file with the Tokyo District Court for protection from creditors as early as 19-Jan-2010 (Nikkei, 12-Jan-2010). The government-backed Enterprise Turnaround Initiative Corp of Japan (ETIC) will then finalise a package of support for the airline. The restructuring plan will, however, be determined in advance by parties, including the Japanese Government, ETIC and JAL's creditors, with this process reportedly rare in Japan;
  • Share price: JAL’s share price slumped 45% to a record low and reached the trading limit on 12-Jan-2010, as investors rushed to sell JAL shares on speculation it would soon file the country’s sixth largest bankruptcy on record (Bloomberg, 12-Jan-2010).
  • Pension reductions agreed: JAL succeeded in securing approval from more than two-thirds of retires for its pension and benefit reduction proposal, with notifications of agreement received from 67% of retirees (The Yomiuri Shimbun, 12-Jan-2010). The company has already obtained consent from more than 90% of its current employees for a pension reduction as of 12-Jan-2010, meaning JAL's pension reform proposal is likely to be formally approved;
  • Creditors: Japan’s Transport Minister, Seiji Maehara, was scheduled to meet with Japan's three megabanks (Mitsubishi UFJ Financial Group Inc, Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc) yesterday to request their cooperation in the turnaround (Nikkei/The Yomiuri Shimbun, 12-Jan-2010). The banks, which are among the airline's largest creditors, are expected to agree to debt waivers (for a total debt forgiveness of JPY350 billion) and other concessions. The banks are expected to deliver their official acceptance for the court-led rehabilitation plan on 14-Jan-2010 (Xinhua, 12-Jan-2010);
  • Executive news: JAL reportedly plans for all 13 Board members, including JAL President, Haruka Nishimatsu, to resign in tandem with the company's planned application for court-led rehabilitation under the Corporate Rehabilitation Law (The Yomiuri Shimbun, 11-Jan-2010). Meanwhile, Kazuo Inamori, Honorary Chairman of Kyocera Corp, will reportedly replace Mr Nishimatsu as the new CEO of carrier (The Asahi Shimbun, 12-Jan-2010);
  • Subsidiaries: JAL will reportedly shut 53 subsidiaries by the end of next fiscal year (Bloomberg, 13-Jan-2010);
  • Outlook: JAL will reportedly seek to restructure within three years after filing for bankruptcy, by reducing its work force, eliminating unprofitable routes and through the receipt of government aid (Nikkei, 12-Jan-2010);
  • Financial outlook: JAL is seeking to post an operating profit in two years under the proposed restructuring plan, with plans to become capable of turning an operating profit of more than JPY100 billion in the year ending 31-Mar-2013 (NHK, 13-Jan-2010).

Japan Government: ''I understand that [staff] are worried about their livelihoods if the pensions, which I assume they have long expected to receive once they got old, are cut back significantly. But if we talk about who is responsible for the current situation of JAL, I believe all [of them] should take responsibility,'' Yukio Hatoyama, President. Source: Kyodo, 12-Jan-2010.

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