ATW Daily News

JAL creditors balk at debt relief plan; government bailout under study

Tuesday October 20, 2009

Japan's finance minister is planning to meet with the country's transport minister today to discuss a potential government bailout of Japan Airlines, which saw its weakened financial status deteriorate further over the weekend when its largest creditors balked at providing ¥300 billion ($3.3 billion) in debt relief and equity swaps.

JAL and a government task force overseeing its restructuring proposed the relief plan but were rebuffed by the banks and asked to present a different plan, according to Japanese media reports. JAL's biggest creditors reportedly are the Development Bank of Japan with ¥230 billion in total loans, Mizuho Corporate Bank with ¥57 billion, Bank of Tokyo-Mitsubishi UFJ at ¥53 billion and Sumitomo Mitsui Banking Corp. with ¥37 billion (ATWOnline, Oct. 14).

JAL's initial restructuring plan, which called for 6,800 job cuts and slashing about 50 international routes, was deemed insufficient by Japan's new Democratic Party of Japan-led government. But Transport Minister Seiji Maehara repeatedly has assured that "the government will back up" the airline if it is in imminent danger of collapse (ATWOnline, Oct. 19)

Kyodo news agency reported that Finance Minister Hirohisa Fujii will meet today with Maehara to discuss JAL, with options under consideration ranging from presenting the creditors with a new plan to a government bailout. JAL may be forced to sell its JAL Hotels subsidiary, according to the report, which added that the carrier's operating loss for its fiscal year ending March 31, 2010, is expected to exceed ¥200 billion.

Gerson Lehrman analyst Daniel Lintz wrote in an analysis issued yesterday that "an injection of public funds remains the only viable option" for JAL, estimating that "a figure approaching ¥1 trillion would seem. . .realistic given the company's steep operating losses over the past two years and its stark earnings forecast." He added, "Without a doubt, Japan Airlines is too big to fail. The carrier provides exclusive service on more than a handful of domestic routes and supports a broader food chain encompassing more than 100 affiliates and partners worldwide."

He argued that the transport ministry should act because it "is complicit in creating the privatized carrier's bloated labor and pension cost structure and preserving its unprofitable domestic route schedules and fare structure."

by Aaron Karp

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