Japan Airlines Co. is considering raising up to ¥300 billion ($2.9 billion) in capital while expecting to post an operating loss of around ¥85 billion for the three months through September, hit by a sharp fall in the number of international passengers due to the coronavirus pandemic, sources close to the matter said Monday.
JAL could take out subordinated loans, which would allow the airline to count part of the debt as capital, as the impact of the novel coronavirus continues to gut demand for air travel, according to the sources.
Seeing the need to strengthen its financial standing by next spring, JAL is hoping to begin full-blown negotiations on its capital-raising plan with a group of banks by the year-end, the sources said.
JAL has already informally informed its lenders of such a view, the sources said, adding possible options to raise capital also include the issuance of subordinated corporate bonds and a public offering.
Another major Japanese carrier, ANA Holdings Inc., the parent of All Nippon Airways Co., is also expected to unveil a plan on Tuesday to secure ¥400 billion from Japanese banks in subordinated loans, which will be paid off after other primary corporate debts are repaid, company sources said earlier this month.
JAL’s estimated red ink for the July-September period would mark an improvement from its operating loss of ¥131.01 billion in the previous quarter, as it has implemented cost-cutting measures and benefited from a government program launched in late July that subsidizes 35% of domestic travel expenses.
JAL filed for bankruptcy in 2010, which exempted it from repaying remaining loans of over ¥500 billion following restructuring efforts, eventually enabling the company to have a higher capital adequacy ratio than rival ANA.
JAL relisted in 2012 after cutting over 100 aircraft and about 16,000 employees.
JAL is scheduled to release its first-half earnings report on Friday. So far, the airline has withheld earnings projections for the current business year through March, citing uncertainty due to the pandemic.
According to JAL data, its international passengers plunged 97.5% in July and 96.9% in August from a year earlier, while its domestic passengers dropped 64.7% in July and 71.7% in August.
Despite the business challenges, JAL’s capital adequacy ratio has remained more stable than that of many foreign carriers, at 45.9% as of the end of June.
Meanwhile, ANA is expecting to book a record annual net loss of around ¥530 billion, company sources said last week.
As part of restructuring efforts, ANA plans to slash up to 30 large jets and around 3,500 jobs from its current group workforce of about 46,000 by fiscal 2022.
ANA will releases its earnings results for the April-September period on Tuesday.
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