14-Jan-2010 11:02 AM

JAL's shares slump; new CEO as bankruptcy nears; considering establishing an LCC

Japan Airlines (JAL) and the Japan Government reported the following developments on 13/14-Jan-2010:

  • Executive appointment: Kazuo Inamori, Japan’s 28th richest man and the honorary Chairman and Founder of Kyocera Corp, was named the next CEO of JAL, although a commencement date was not disclosed (Kyodo, 13-Jan-2010). Mr Inamori (77) stated he is unlikely to work full time in the role, citing his age, but would not accept any salary for the position. Enterprise Initiative Corp of Japan (ETIC) is reportedly planning to promote a junior executive within the company to the post of COO;
  • Delisting: ETIC is reportedly finalising plans to delist the company’s shares by seeking a 100% equity reduction (Kyodo, 13-Jan-2010);
  • Shares: Shares in JAL slumped a further 81% to just JPY7 (USD 8.00 cents) yesterday from Tuesday's close of JPY37, amid expectations the carrier will file for bankruptcy protection as soon as next week and be delisted (Nikkei Daily/Asahi Shimbun, 13-Jan-2010);
  • Subsidiary companies: ETIC is reportedly seeking to sell off or liquidate approximately 50 of more than 200 JAL subsidiaries and affiliates, including its travel agent and hotel management company (The Yomiuri Shimbun, 14-Jan-2009);
  • Network/fleet plans: ETIC reportedly plans to eliminate a further 14 international and 12 domestic routes by the end of 2012, and retire large aircraft from JAL's fleet, utilising small- and medium-sized aircraft instead to help reduce the carrier's operating costs (The Yomiuri Shimbun, 14-Jan-2009);
  • LCC establishment: ETIC is reportedly considering establishing an LCC as part of efforts to offer services to eliminate leisure destinations from JAL’s primary route portfolio (Kyodo, 13-Jan-2010). The LCC would reportedly commence operations by FY2012, and would reportedly cover routes from airports including Kansai and Chubu International Airports, to tourist destinations in Asia and domestic locations, such as Hokkaido and Okinawa
  • Codeshare arrangements: British Airways confirmed it has offered JAL access to 32 cities as part of the enhanced oneworld offer, with the carrier to add 22 more European destinations to the arrangement within two years, including Madrid, Milan and Paris (Bloomberg, 13-Jan-2010);
  • Ratings: Standard & Poor's lowered its long-term senior unsecured debt ratings on JAL and its wholly-owned subsidiary, Japan Airlines International, from ''CCC” to ''CC'', due to the increased likelihood that JAL's restructuring will be implemented through formal proceedings. The rating means that bonds issued by JAL and JAIC are "highly vulnerable and very speculative". S&P added it may lower the long-term senior unsecured rating on the two to ''D'' for default and the long-term corporate credit ratings from ''SD'' to ''D'' for selective default if JAL files for bankruptcy protection. In addition, S&P has placed the debt ratings on JAL and JAIC on CreditWatch with negative implications. Meanwhile, Moody's Investors Service downgraded the long-term debt rating and issuer rating on JAIC from ''Caa1,' to ''Ca'', judging that the subsidiary's obligations are highly speculative.  

Japan Airlines: “I’m a total novice when it comes to the transportation industry. I’ve decided to accept because the government and the turnaround body want to prevent JAL’s failure by any means,” Kazuo Inamori, Incoming CEO. Source: Bloomberg, 13-Jan-2010.

Japan Government: “It’s important for JAL to depart from its government dependency and use Inamori’s spirit. I highly rate his management ability. I believe he’s the most suitable person,” Yukio Hatoyama, Prime Minister. Source: Bloomberg, 13-Jan-2010.

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