JAL lost ¥131 billion in half, skips forecast

by Kazuaki Nagata and Takahiro Fukada

Battered by the global financial crisis and the H1N1 swine flu pandemic, Japan Airlines Corp. on Friday posted a hefty group net loss of ¥131.2 billion for the April-September half and said it has applied for out-of-court debt restructuring as a stopgap measure to stay aloft.

It represents JAL’s worst first-half loss since it merged with Japan Air System in 2002. JAL also said sales for the half fell 28.8 percent to ¥763.9 billion compared with a year ago.

Sales from domestic flights suffered a 12 percent drop, but the faltering airline struggled even harder on international routes, logging sales of only ¥225.4 billion, down 42.8 percent. The carrier refrained from issuing a forecast for the full year.

“It is difficult to have a forecast, and we would like to avoid causing misunderstanding, so we refrained from posting the forecast,” JAL executive Yoshimasa Kanayama said.

JAL President Haruka Nishimatsu said in the future the company needs to reduce the number of international flights, which have been the airline’s main business for a long time.

Asked whether management intended to take responsibility for the dismal figures, Nishimatsu also hinted the team may step down after the company puts together a rehabilitation plan and outlines a road map for its feasibility.

How to reconstruct the struggling airline, which posted a record ¥99.04 billion group net loss in the April-June quarter, has been a focus of increasing public attention.

JAL will tap into an arbitration scheme dubbed alternative dispute resolution, which allows a noncourt third-party to act as an intermediary between JAL and its creditors and immediately suspend loan payments and possibly have debt waived in the longer term.

If a company takes the ADR route, financial institutions that write off the debts will receive tax benefits.

Earlier this week, the government revealed options for saving JAL, including a bridge loan it is expected to need this month from the Development Bank of Japan and the drafting of a special law that would allow the state to reduce pension benefits.

The company has applied for rehabilitation under Tokyo-based Enterprise Turnaround Initiative Corp., a body set up by the government and private-sector financial institutions to rehabilitate debt-ridden firms.

Speaking about Friday’s ADR decision, Nishimatsu said it was necessary because it would facilitate arrangements to obtain bridge loans needed for JAL to stay alive until a decision on longer-term financial aid is made by the corporate turnaround body.

Ryota Himeno, analyst at Mitsubishi UFJ Securities Co., said JAL will not likely see its business dramatically improve in the near future as it will take some time to reform its high cost structure by reducing pensions and streamlining its workforce.

But analysts said the carrier will be able to receive funding from ETIC and continue to exist with the government’s support. “The airline will certainly not disappear,” Himeno said.

While taxpayers might not welcome the government’s assistance for JAL, experts said travelers will benefit from its continued existence.

“If there is only one carrier, it will not be good in terms of the antitrust law and competition,” Himeno said, adding that JAL and rival All Nippon Airways Co. should compete with each other to keep airfares low and provide passengers with more choices.

Makoto Murayama, senior analyst at Nomura Securities Co., pointed out people who can only use JAL from their local airports also need the carrier to continue operations.

The struggle at Japan’s largest has spread overseas.

American Airlines parent AMR Corp., may team up with private-equity fund TPG Inc. to invest at least ¥300 million in JAL, aiming to keep JAL in the oneworld alliance, while Delta Airlines Inc. of SkyTeam alliance also wants to bring JAL to their alliance.

Nishimatsu said the company needs to make an “urgent decision” by the end of the year on capital tieup talks with foreign air carriers.

However, he said the continuation of the carrier’s alliance ties with American Airlines is “natural” in view of the costs of withdrawing from the oneworld grouping.

Information from Kyodo added