7-Jan-2010 10:45 AM

USD7.6 billion in state aid possible for JAL; American could increase financial package for JAL

Japan Airlines (JAL) and the Japan Government reported the following developments on 05/06-Jan-2010:

  • ETIC bailout: Enterprise Turnaround Initiative Corp of Japan (ETIC) reportedly plans to offer JPY700 billlion (USD7.6 billion) in investment and loans as a bailout for JAL, with the amount to reportedly consist of approximately JPY300 billion (USD3.3 billion) in capital and JPY350 billion (USD3.8 billion) in debt (Kyodo, 06-Jan-2010). The carrier will reportedly receive the support if it files for bankruptcy and its banks agree to write off loans (Reuters, 06-Jan-2010). JAL's major creditors, which include the state-owned Development Bank of Japan (DBJ), Mizuho Financial Group, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, have reportedly been asked to shoulder approximately 70% of the debt amount;
  • International partners: American Airlines stated it remains flexible in possibly enhancing its financial package for Japan Airlines in an attempt to keep the carrier within the oneworld alliance (Kyodo, 06-Jan-2010). American added it can share its corporate turnaround experts, while other oneworld alliance partners would also play an ''integral'' role to prevent JAL from undergoing court-backed bankruptcy proceedings. American also stated it would be willing to invest in JAL even if it enters bankruptcy protection (Reuters, 06-Jan-2010). American added that oneworld is also in negotiations to attract other Asian carriers which have not aligned with any existing alliances, and highlighted that JAL will gain access to networks in emerging countries if it remains with oneworld (Kyodo, 06-Jan-2010);
  • Executive appointments: Japan Airlines is reportedly planning to promote a junior executive within the company as COO (Kyodo, 06-Jan-2010). The carrier reportedly plans to find a replacement for outgoing CEO, Haruka Nishimatsu, from outside the company.
  • Slots: United Airlines is reportedly considering putting its Japan slots and routes up as collateral for a USD500 million bond issue (Bloomberg, 05-Jan-2010). The slots are reportedly valued at around USD870 million.

American Airlines: ''Our proposal is a very fluid document that is constantly being reviewed and considerations are being given if necessary to adjust it accordingly. We want to make sure, under any future scenario, that we are offering the most useful, beneficial total value package to Japan Airlines…I think all of us at American Airlines are still very optimistic that we will be able to maintain and enhance our alliance partnership with Japan Airlines…We are best-positioned to assist JAL in its own restructuring because we've taken the appropriate path to restructure without having to go through bankruptcy…'There is no airline to my knowledge today that has returned itself to a level of profitability and a level of global service by taking the path to bankruptcy,'' Michael Wascom, MD International and Government Affairs. Source: Kyodo, 06-Jan-2010.

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