Govt bailout to keep broke JAL in the air
4:00 AM Thursday Jan 21, 2010
Expand Passengers of Japanese Airlines will retain their frequent flyer miles. Photo / AP
Japan Airlines says it can be reborn after filing for one of the country's biggest bankruptcies and entering a restructuring that will shrink Asia's top carrier and its presence around the world.
Staggering under a US$25.6 billion ($35 billion) debt mountain, the carrier applied for protection from creditors under the Corporate Rehabilitation Law - Japan's version of Chapter 11 - with the Tokyo District Court.
Japan's flagship airline will slash nearly 16,000 jobs, reduce pensions for retired staff, cut routes and shift to more fuel-efficient aircraft as part of its restructuring.
About $10 billion of government cash will keep JAL's planes in the air during the reorganisation. Lenders will forgive $8 billion in debt, and JAL shares will be removed from the Tokyo Stock Exchange on February 20, wiping out investors.
There was no word on the outcome of a fierce tug-of-war between Delta Air Lines and American Airlines for a slice of JAL's business. The airline's access to Asia is still a mouthwatering prize for foreign airlines.
A state-backed turnaround agency pledged 900 billion ($13.5 billion) in financial support for JAL - 600 billion in credit lines and a 300 billion cash infusion.
The bankruptcy is the fourth-largest in Japan, according to figures from Teikoku Databank, which tracks corporate failures. "This is not the end of JAL," transport minister Seiji Maehara told reporters.
"Today is the beginning of a process to keep JAL alive."JAL President Haruka Nishimatsu resigned, bowing deeply as he apologised for the company's troubles. Kazuo Inamori, a Buddhist monk and founder
of Kyocera Corporation and Japan's No. 2 mobile carrier KDDI, has been tapped as its next leader. "This is our last chance," Nishimatsu said. "I believe we can be reborn as an airline that can represent Japan again."
JAL said flights would continue uninterrupted and frequent flyers would not lose their miles. Tokyo asked foreign governments for co-operation to keep JAL flying around the world.The day's events culminate a process that began in October when JAL -
saddled with debts of 2.32 trillion - first turned to the Enterprise Turnaround Initiative Corporation of Japan for help.Under the prepackaged reorganisation, it will embark on a massive overhaul to shed the fat and inefficiency that hobbled its finances.
Maehara said the turnaround would involve 15,661 job cuts - a third of JAL's payroll - by March 2013.
The carrier will retire all 37 of its Boeing 747 jumbo aircraft and 16 MD-90s, which will be replaced by 50 small and regional jets.
JAL shares, which have lost more than 90 per cent of their value over the past week, tumbled another 40 per cent on Tuesday to 3 before finishing flat at 5 yen.
The company is now essentially worthless, with a market capitalisation of about 13.7 billion - the price of one Boeing 787 jet.
HARD LANDING
* JAL was founded in 1951 and came to symbolise Japan's rapid economic growth
* When Japan's 1980s property and stock bubble burst, risky investments in foreign resorts hit profits
* Traffic has slowed recently amid the global economic downturn and swine flu fears Competition from rival ANA and a safety lapses have also hurt.
- AP
