Bankruptcy, ¥700 billion in public funds eyed for JAL

Kyodo News

A government-backed corporate turnaround body is making final arrangements to use around ¥700 billion in public funds for loans and investments to rehabilitate Japan Airlines Corp. through court-backed bankruptcy proceedings, according to sources.

Enterprise Turnaround Initiative Corp. of Japan, funded by both the government and private financial institutions, plans to create a credit line of around ¥400 billion and invest about ¥300 billion in Japan’s top carrier, the sources said Wednesday.

The entity, which can currently raise up to ¥1.6 trillion in government-guaranteed funds, plans to ask JAL’s main creditor banks to waive about ¥300 billion in debt and require the carrier to cut over 10,000 jobs.

ETIC plans to announce a turnaround plan for JAL later this month, which may concurrently require the carrier to apply for bankruptcy protection under the Corporate Rehabilitation Law.

Under a fresh asset review carried out by the entity, JAL’s liabilities are believed to have exceeded its assets by around ¥750 billion, the sources said.

A task force of corporate turnaround experts set up by the Democratic Party of Japan-led government last year sought a debt waiver of around ¥250 billion, but the amount is likely to increase after more excessive liabilities were discovered from a stringent review covering various areas, including aging aircraft.

ETIC aims to further improve JAL’s asset holdings by dissolving excessive liabilities through drawing down and then replenishing capital as well as through the elimination of nearly ¥70 billion in corporate bonds.

The turnaround body plans to set aside a pool of around ¥400 billion in loans to avoid cash shortages and will finance business transactions for purchasing fuel, aircraft parts and other items deemed necessary to maintain key operations.

Meanwhile, the state-owned Development Bank of Japan officially decided Wednesday to double its credit line for JAL to ¥200 billion as a stopgap measure to keep the carrier aloft until ETIC extends its bailout package.

Under the rehabilitation plan being drawn up by ETIC, JAL is expected to cut over 10,000 jobs, more than an earlier anticipated reduction of 9,000 employees. It will also restructure about 45 loss-making international and domestic routes in line with a previous plan.

The turnaround body will also seek to save mileage points that JAL users have accumulated and will aim to keep JAL’s shares listed to stem credit fears and to avert driving away more customers from the carrier.

Normally, companies filing for bankruptcy proceedings are delisted. But the Tokyo Stock Exchange Group Inc. revised listing regulations in 2003 and introduced a new framework allowing firms to keep their shares listed even if they apply for bankruptcy protection, if certain conditions are met.

If JAL stays listed on the TSE, it would be the first case under the new framework.