• Kyodo News


Japan Airlines Corp. is asking its creditor banks, including the government-backed Development Bank of Japan and Mizuho Corporate Bank, to funnel up to 400 billion yen into its capital base by purchasing preferred shares and other steps, sources familiar with the matter said Thursday.

The airline wants to secure consent from the creditors to enhance its financial profile by late June, when its general shareholders’ meeting will convene, the sources said.

JAL unveiled a midterm business revival program in February calling for cutbacks in expenses and a workforce reduction program to revive profitability.

The plan also includes consolidating domestic and international flight services and the shedding of assets and shareholdings.

According to the restructuring plan, some shares of trading house subsidiary JALUX Inc. will be sold to general trading house Sojitz Corp.

But the airline is also drafting additional restructuring measures to persuade its creditors to back the capital infusion, they said.

The capital plan calls for the airline to float preferred shares that would then be bought by the creditor banks. The airline would use part of the proceeds from the share sale to partially repay its debts.

The plan would effectively securitize part of JAL’s interest-bearing debts. The scheme, known as a debt-equity swap, usually benefits creditor banks when a borrower’s business improves.

The Development Bank of Japan wants to make sure the airline will straighten up its finances before the government-backed bank embarks on its own privatization in 2008, the sources said.

The airline has been swamped by effective interest-bearing liabilities of 1.7 trillion yen.

Conversion of a part of these debts into shares would expand its shareholders’ equity, while helping reduce the debts. This in turn would enhance the airline’s financial profile, they said.

JAL incurred a group net loss of 16.27 billion yen in fiscal 2006 to March 31, remaining in the red for a second consecutive year.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.