ATW Daily News

Pressure grows for JAL restructuring; AA to fight DL tie-up

Tuesday November 10, 2009

Japan Airlines is expected to report a heavy loss Friday for its fiscal first half ended Sept. 30, increasing pressure on the carrier and the Japanese government to develop a restructuring plan to help assure investors and customers that the troubled company won't collapse.

"We will not create a situation in which airplanes do not fly," Transport Minister Seiji Maehara insisted to reporters, adding that short-term government financing and other rescue measures could be unveiled this week in advance of the earnings release. JAL's turnaround is expected to be overseen by the Enterprise Turnaround Initiative Corp. of Japan, a newly created quasi-government entity designed to help rescue struggling companies (ATWOnline, Oct. 30).

According to Japanese media reports, a key issue is the carrier's pension funding deficit, estimated to be more than ¥300 billion ($3.3 billion). Maehara has said he is pressing for legislation that would ease JAL's pension burden and creditors reportedly are willing to provide relief if the government can help solve the pension problem. Creditors last month balked at supplying around ¥300 billion in debt relief and equity swaps (ATWOnline, Oct. 20). Pension relief legislation could be introduced as soon as next week, according to multiple reports.

Meanwhile, JAL announced that President Haruka Nishimatsu and about 70 top executives will forego pay in December. Agence France Presse reported that the airline also is considering asking 17,000 nonexecutive employees to forego winter bonuses. Once a restructuring plan is developed, JAL likely will resume negotiations with Delta Air Lines and American Airlines about one of those carriers potentially taking a stake (ATWOnline, Oct. 6).

The Dallas Morning News yesterday published a transcript of comments made by AA Chairman and CEO Gerard Arpey at the airline's fall leadership conference late last month that made it clear it will fight hard to keep JAL in oneworld. SkyTeam Chairman Leo van Wijk said last week that his group is keen on recruiting JAL (ATWOnline, Nov. 6).

"JAL. . .is under quite a bit of financial stress right now and our friends in Atlanta are trying to capitalize on that by suggesting that JAL. . .should change alliances [to] SkyTeam," Arpey told AA executives. "We obviously think that would be a very bad idea for Japan Airlines. That certainly would be very bad for us." He added that "Delta is very dominant through [subsidiary] Northwest [Airlines] in Japan. . .If JAL were to change horses, we would certainly argue that they might not be allowed to even codeshare, let alone have immunity with the dominant carrier [at Tokyo] Narita."

In a statement released yesterday, Arpey said, "We are convinced that we can deliver the most meaningful alliance value to JAL by a wide margin. . . not to mention the financial costs JAL would incur if it changed alliances at such a critical phase in its restructuring."

by Aaron Karp

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