Japan Airlines Corp, seeking a fourth state bailout since 2001, will be reorganised under a government plan designed to avert a bankruptcy at the nation’s largest carrier.
A government-appointed panel will draft a new turnaround plan by the end of next month after officials snubbed a JAL proposal that Transport Minister Seiji Maehara said didn’t include enough cost-cutting or fundraising.
“The question is whether the restructuring plan is realistic,” Prime Minister Yukio Hatoyama said at a Group of 20 meeting in Pittsburgh. “I want to see with my own eyes whether they can really carry out a plan that cuts personnel costs.”
The airline tumbled for a second day in Tokyo trading on concerns it will be broken up or forced to sell new shares under government plans. JAL wants to buy time to secure an investment from American Airlines or Delta Air Lines Inc., cut staff and axe the most routes in its history.
“If JAL is split up, current shareholders will lose their place,” said Mitsushige Akino, who oversees the equivalent of $656 million at Ichiyoshi Investment Management Co “More funds without drastic restructuring won’t solve the problems anyway. The best way is to just let JAL collapse.”
The government has appointed a five-member panel to assess JAL’s future. The plan will look at the airline’s management performance, the board’s head, Nomura Holdings Inc. adviser Shinjiro Takagi, said today.
JAL “tried really hard with their cost-cutting plan but we weren’t sure that it could really be carried out,” Maehara said today.
“And, the capital was too small — that was the biggest problem.”
The carrier, which is planning to eliminate 6,800 jobs by 2011, has enough cash to get through December, Maehara said.
Airline spokeswoman Sze Hunn Yap declined to comment today. The carrier has asked the government for financial support, without requesting a specific amount, President Haruka Nishimatsu said yesterday.
Bankruptcy is unlikely to be part of the restructuring plans, Hatoyama said.
“We don’t want it to go that way,” he said. The prime minister added that he wants to make a decision on JAL’s request for funding “soon.”
Hatoyama may back a deal to save Japan from the loss of face suffered by Switzerland and Belgium when Swissair and Sabena SA collapsed in 2001.
“It’s always a bit embarrassing for a flag carrier” to be struggling, said Keith McMullan, managing director of London-based Aviation Economics, a consulting company. “It’s almost inevitable that Japan Air will have to get bailed out.”
The carrier fell 7.6 per cent to ¥133 today in Tokyo after tumbling a record 16 per cent yesterday.
The airline may need to raise ¥150 billion ($1.7 billion) in capital by the end of November, Nikkei English News said today, without citing anyone. A further ¥100 billion may be needed by March 31 to continue operating, the report said.
In June, the carrier received a ¥100 billion loan from state-owned Development Bank of Japan, Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc.
JAL had total liabilities of ¥1.5 trillion as of June 30, according to an August 7 statement. The airline may collapse unless it shrinks operations, reforms its high-cost structure and regains lenders’ confidence, Maehara said on September 17.
Japan Air aims to complete talks on an arrangement with an overseas carrier by mid-October, Nishimatsu said on September 15. Kent Landers, a spokesman for Atlanta-based Delta, and Charley Wilson, a spokesman for Fort Worth, Texas-based American, both declined comment yesterday. JAL is also in discussions with Air France-KLM on selling stakes, according to people familiar with the negotiations.
JAL posted a ¥99 billion loss in the first quarter, the most in at least six years, as business and leisure travel plummeted during the country’s worst postwar recession.
The airline, which gets more than half its airline business from international travel, had a 25 per cent drop in overseas passengers in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003. Japan Air was privatised by the government in 1987.
JAL “will avoid a failure,” said Satoshi Yuzaki, a section manager at Takagi Securities Co. “That is the worst-case scenario.”
