Business

Saturday October 24, 2009

JAL faces US$8.8bil excess debt if liquidated


TOKYO: Japan Airlines Corp’s liabilities would exceed its assets by as much as 800 billion yen (US$8.8bil) if the struggling airline, Asia’s largest by revenues, were liquidated, a source familiar with the matter said.

The estimate of JAL’s negative net worth, calculated by a government-led task force in charge of its restructuring, underscores the depth of the problems facing the airline as it seeks aid from banks and the state to avoid bankruptcy.

The task force, which is led by turnaround specialists and reports to Transport Minister Seiji Maehara, was seeking a bridging loan of about 180 billion yen by November to prevent JAL from running out of cash, the source said.

Maehara told a news conference that he met Prime Minister Yukio Hatoyama and Finance Minister Hirohisa Fujii earlier yesterday to discuss the state’s role in supporting JAL, but no concrete decisions were made.

“There are various options regarding public support for JAL and we will put together these options. The prime minister will make a final decision,” Maehara said.

Shares in JAL, which have lost more than 40% so far this year, were down 1.6% at 120 yen by early afternoon. The benchmark Nikkei average was up 0.7%.

JAL is headed for its fourth annual loss in five years, weighed down by roughly US$15bil in debt and a bloated cost base that makes it less efficient than domestic rival All Nippon Airways Co.

The task force was seeking 300 billion yen in fresh capital from the government and the private sector to bolster JAL’s battered finances, the source said, confirming a report earlier in the week by the Nikkei newspaper.

A JAL spokesman said: “We have not decided anything. We are crafting a revival plan from various viewpoints.”

The task force also wants to use a recently created scheme called “Alternative Dispute Resolution” under which a third party would mediate between JAL and its creditors on an out-of-court debt restructuring, according to the source.

But JAL’s creditors, which include the country’s top three lenders and the state-owned Development Bank of Japan, have so far rebuffed the plans presented by the task force, arguing they are being asked to carry too much of the burden to revive JAL.

The task force, which has asked creditors for 250 billion yen in loan waivers and debt-for-equity swaps, needs to offer details on the use of public funds and map out a better plan to cut pension obligations and boost margins, bankers have said.

“There are problems from the perspectives of the viability of the restructuring plan and the fairness of who shoulders the burden,” a banker told Reuters.

The task force’s plan also included JAL halving the number of subsidiaries and affiliates from 290 and about 8,000 job cuts, a little less than a fifth of its workforce, the source said.

“It is not certain whether JAL will go through a private reorganisation or file for bankruptcy, but even if it stays clear of bankruptcy, we think value for existing shareholders will be substantially reduced on dilution accompanying a big capital increase,” analyst Naoko Matsumoto wrote in a note to clients. — Reuters

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