http://www.businessweek.com/news/2010-01-11/japan-air-set-for-bankruptcy-as-state-bailouts-end-update3-.htmlIt's a bit of a read but still..
Jan. 11
Japan Airlines Corp. is preparing for what may be the country’s sixth-largest bankruptcy as Prime Minister Yukio Hatoyama breaks with predecessors who bailed out the carrier three times in the past nine years.
A final decision on the future of Asia’s largest carrier, founded in 1951, may be made this week, and a bankruptcy filing will follow next week, according to three people familiar with the situation. The finance ministry and the Tokyo-based carrier’s biggest lenders all favor a court restructuring, according to people familiar with the matter.
Hatoyama ended half a century of near-continuous rule by the Liberal Democratic Party in September on a pledge to cut “wasteful” government spending and he is set to push through a bankruptcy rather than granting unrestricted loans to a carrier with at least 1.5 trillion yen ($16 billion) of liabilities. The yield on JAL’s 2013 notes tripled last week and shares slumped to a record low in Tokyo trading on speculation the carrier would seek court protection.
“It’s impossible that JAL would have gone bankrupt in the LDP era,” said Satoshi Yuzaki, an analyst at Takagi Securities Co. in Tokyo. “The quick decision-making by Hatoyama’s government is commendable.”
The carrier, headed by Chief Executive Officer Haruka Nishimatsu, 62, will continue flying, the government has said. JAL previously won emergency loans from a state-owned bank under LDP administrations following the Sept. 11 terrorist attacks in 2001, the 2003 SARS outbreak and again last year as Japan suffered its worst postwar recession.
Delta, American
Delta Air Lines Inc. and AMR Corp.’s American Airlines, the world’s two largest carriers, which are competing to invest in JAL, both said last week that a bankruptcy filing wouldn’t deter their plans. The carriers want a stake to access JAL’s networks in China and Japan.
Under the proposed restructuring plan, Enterprise Turnaround Initiative of Corp. of Japan, a state-affiliated fund, will provide 300 billion yen of capital to JAL and a 400 billion yen credit line, the Yomiuri newspaper said last week. Creditors will be asked for about 350 billion yen in debt waivers and debt-for-equity swaps, the report said. The carrier also plans to cut 15,600 jobs, or 30 percent of its workforce, over three years, Kyodo News reported today, without saying where it got the information. JAL spokeswoman Sze Hunn Yap declined to comment. Nishimatsu, CEO since 2006, has already said he will step down.
“Bankruptcy is the best way to ensure a speedy revival for JAL,” said Osuke Itazaki, an airlines analyst at Credit Suisse Group AG in Tokyo.
The government won’t be discussing JAL today, Finance Minister Naoto Kan told reporters today in Tokyo.
Biggest Lenders
JAL’s four biggest lenders, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and state-owned Development Bank of Japan were owed 429 billion yen at the end of March, according to the carrier.
Mizuho spokeswoman Masako Shiono, Mitsubishi UFJ spokesman Takashi Takeuchi and JAL spokeswoman Yap declined to comment on the possibility of bankruptcy. Sumitomo Mitsui spokeswoman Chika Togawa wasn’t immediately available. Calls to the media relations office of the Ministry of Finance, which oversees Development Bank, went unanswered.
JAL fell 26 percent in the past three trading days to 67 yen, after dropping 68 percent last year, the worst performance in the Nikkei 225 Stock Average. The carrier will be delisted as part of the restructuring, wiping out shareholders, the Asahi reported today, without saying where it got the information.
Bonds Slump
The yield on JAL’s 10 billion yen in 2.94 percent notes due in 2013 reached a record 52.2 percent on Jan. 8, according to Japan Securities Dealers Association prices on Bloomberg. The notes yielded 9 percent a year ago. Tokyo markets are closed today for a national holiday.
Singapore Airlines Ltd.’s S$900 million ($647 million) of 4.15 percent bonds due 2011 yield 2.3 percent, according to DBS Bank prices on Bloomberg today. Cathay Pacific Airways Ltd.’s S$150 million of 3.82 percent bonds due 2011 yielded 2.69 percent today, DBS prices show.
JAL sought help from Enterprise Turnaround in October after creditors and the government said the carrier’s restructuring plan, which included 6,800 job cuts, was insufficient. The carrier employed 47,526 people as of March, compared with 33,045 at All Nippon Airways Co., Japan’s No. 2 carrier.
Fewer Passengers
JAL posted a 63 billion yen loss in the year ended March, its third unprofitable year in four, and lost 131.2 billion in the following six months. Passenger numbers dropped for a 15th straight month in October, as the global recession sapped travel demand. Worldwide international air travel likely fell 4.1 percent last year, causing industrywide losses of $11 billion, according to the International Air Transport Association.
Shrinking export demand and unemployment of about 5 percent helped damp air travel in Japan last year. The worst global recession since the Great Depression sapped consumer spending worldwide and made credit harder to find, forcing General Motors Corp. and Chrysler LLC into bankruptcy.
To pare losses, JAL has announced plans to cut about 30 routes since April. The carrier filled less than 65 percent of seats on domestic routes in the last six fiscal years because of competition from bullet trains and low-cost carrier Skymark Airlines Inc.
“JAL has a lot of routes that are unprofitable,” said Soumyajyoti Basu, an analyst at advisory company Frost & Sullivan. Whether bankruptcy will revive JAL “depends on how effectively” they can reorganize its network, he said.
Boeing Fleet
The carrier had a fleet of 279 planes as of March, including 48 Boeing Co. 747s. JAL has 35 Boeing 787s on order. The airline served 59 domestic airports as of April and flew to about 20 other countries and territories. It operated more than 700 international and domestic flights a day in November.
JAL has shed staff and sold assets, including hotels and a stake in a credit-card unit. Workers have agreed to a cut in future pensions payments and existing retirees have also been asked to accept reductions. The pension fund may be dissolved if that request is rejected, two people familiar with the matter said yesterday.
The airline has opposed bankruptcy on concerns it would deter passengers from booking trips. The Transport Ministry and lenders initially took a similar stand, according to the Yomiuri.
“This is a matter of trust,” said Mitsuo Shimizu, an analyst at Cosmo Securities Co. in Tokyo. “Even if a new JAL emerges, you have to wonder about the company’s image.”
Reassuring Passengers
To reassure passengers, Transport Minister Seiji Maehara has repeatedly said operations will continue. State-owned Development Bank of Japan has given JAL 200 billion yen of credit lines to ensure it can keep flying.
Delta and Northwest Airlines Corp. both exited bankruptcy in the U.S. in 2007 after filing in 2005. Delta, which collapsed under $28.3 billion of debts, later bought Northwest.
JAL may also re-emerge from bankruptcy because of the pre- planning that is going on and the support the carrier is getting from the government, said Basu.
“The ideas behind the filing process looks good and well in place,” he said. “The only cause of concern would be how they are implemented.”
