12-Nov-2009 11:01 AM

TPG reportedly to invest jointly in JAL with American Airlines; Qantas to advise JAL on LCC

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

  • JAL LCC: Qantas may advise Japan Airlines on establishing a LCC, as the alliance pools resources to keep the struggling Japanese airline in the oneworld alliance - see Qantas offers to help JAL with LCC subsidiary, as part of oneworld strategy to keep JAL in the alliance;
  • TPG investment: American Airlines parent, AMR Corp, has reportedly invited private-equity firm, TPG (which has invested in carriers including Midwest Air, Tiger Airways and Ryanair and was a lead partner in a 2007 attempt to privatise Qantas), to join a proposed investment in Japan Airlines.(Bloomberg/Financial Times/Wall Street Journal, 12-Nov-2009);
  • Delta-JAL antitrust approvals: AMR Corp CFO, Tom Horton, stated it would be unlikely for a Delta-JAL alliance to secure antitrust approvals, as the combination would have a 60% market share on services between the US and Japan (Bloomberg, 12-Nov-2009);
  • Pensions: Japan Government has reportedly outlined plans to reduce JAL’s defined-benefit pensions from 4.5% to approximately 1.5% (The Yomiuri Shimbun, 12-Nov-2009). The Government also reportedly plans to request that former employees of the carrier waive their right to receive lump-sum pension payments. JAL needs to gain consensus from more than two-thirds of its past and present employees on the rate cut and if this is not achieved, the government reportedly plans to forcibly reduce then through special legislation. JAL President, Haruka Nishimatsu, stated the carrier would hold a meeting with retirees later this month to seek their approval on the matter (Kyodo News, 12-Nov-2009). Meanwhile, the carrier’s retirees have requested Transport Minister, Seiji Maehara, provide an explanation of the Government's plan and urged that the issue be resolved through discussions (The Japan Times, 12-Nov-2009). However, the Committee to Consider the Revision of JAL’s Pension Scheme website stated that more than a third of JAL’s retirees have pledged to vote against a reduction of 50% or more in pension payments, sufficient to block the change (Bloomberg, 10-Nov-2009);
  • Debts: JAL’s debts were reportedly larger than its assets by approximately JPY250 billion at the end of Jun-2009 (The Yomiuri Shimbun, 12-Nov-2009). Separately, Mr Maehara, stated, “I believe that JAL is expected to face financial trouble this month" (Japan Times, 11-Nov-2009);
  • Management resignations: Japan Government has reportedly called for JAL management to take responsibility for the carrier’s financial situation and to “voluntarily” resign (Kyodo News, 12-Nov-2009);
  • Bridging Loans: Mr Maehara stated the government-backed Development Bank of Japan would independently provide bridging loans to the carrier, with the Nikkei reporting that the loan may total JPY100 billion (USD1.1 billion) (Bloomberg, 11-Nov-2009). No official details were provided on the amount of the loan.   

AMR: "TPG is a well-respected investor in the airline space. To the extent that there is an investment to be made, they would be a natural partner for American. We are pleased to have their support… TPG could also be part of a comprehensive recovery plan…and could potentially help invest in JAL," Tom Horton, CFO. Source: Bloomberg, 12-Nov-2009.

Qantas: “[Qantas is] making sure there’s a proposition to JAL that makes Oneworld continue to be attractive for them. One of the great things that Qantas and Oneworld can aid JAL with is our experience of setting up a low-cost operator… Our contribution is absolutely not in financial terms, but what we can deliver in intellectual property rights,” Alan Joyce, CEO. Source: Bloomberg, 11-Nov-2009.

Japan Government: ‘‘There’s no doubt that the management is responsible for causing this kind of situation. I believe that managers will voluntarily accept the consequences,” Hirohisa Fujii, Finance Minister. Source: Kyodo News, 12-Nov-2009.

JAL Retiree Group: "We have been asking to resolve this issue through discussion….We have never said that we oppose everything (about the pension cut) and we never said there is no need for discussion," Tsutomu Watanabe, Representative. Source: The Japan Times, 12-Nov-2009.

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