Struggling domestic airlines may receive emergency DBJ loans

by Kiyotaka Matsuda and Chris Cooper

Bloomberg

Japan may offer emergency loans to Japan Airlines Corp. and All Nippon Airways Co., the country’s biggest carriers, for the first time in five years as they forecast losses amid a drop in passengers.

The government may arrange for the Development Bank of Japan to offer an undecided amount of low-interest loans to domestic carriers for new planes as part of aid to be unveiled by March 31, Yasuhiro Shinohara, an aviation division director at the transport ministry, said in an interview Wednesday.

Japan Air, with more than 66 aircraft on order, is cutting staff at its largest unit by 13 percent and offering cabin attendants unpaid leave after suffering the biggest drop in international passengers in December in more than five years. The government in December said it will provide¥3 trillion in financial aid to Japanese companies as part of a package to lift the economy out of recession.

“Japan is taking advantage of a global move to inject money into companies,” said Mitsushige Akino, who oversees $615 million in assets in Tokyo at Ichiyoshi Investment Management Co. “They should lend money to the strongest airline, All Nippon, to help it survive. Japan Air can still slash costs further and the government should let it fend for itself.”

JAL is considering using low-interest loans of up to ¥200 billion from the DBJ, the Nikkei reported Feb. 19, without citing a source. ANA may apply for government loans worth tens of billions of yen, the daily Asahi reported Feb 25.

Cost-cutting measures spurred by economic declines have caused a slump in premium air travel worldwide, the International Air Transport Association said Feb. 19.

The number of passengers with first- and business-class tickets, traditionally the most profitable customers, fell 13 percent in December from a year earlier, the industry group said. Declines in premium traffic were led by Asia, with travel in the Far East declining 25 percent and across the Pacific 20 percent.

Japan Air predicts a net loss of ¥34 billion in the year ending March 31, compared with a previous profit forecast of ¥13 billion, as sales tumble. ANA, which will slash 9 percent of international services in the fiscal year starting April 1, forecasts a loss of ¥9 billion for this fiscal year, reversing a previous prediction of a ¥17 billion profit.

The DBJ, the largest creditor for JAL and ANA, lent them both money when passenger numbers tumbled during the SARS outbreaks in 2003.

JAL received ¥90 billion in loans from the bank in the year ended March 2004 and had ¥284 billion of borrowings outstanding at the end of March.

ANA borrowed ¥50 billion from the bank during the SARS outbreak and had ¥132 billion outstanding at March-end.

JAL declined to deny the possibility of a loan from the DBJ, spokeswoman Sze Hunn Yap said Thursday. All Nippon, the first customer for Boeing Co.’s 787 Dreamliner, is considering loans from numerous financial institutions, including the DBJ, spokesman Yoshifumi Miyake said separately Thursday.