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December 8, 2009

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Japan set to guarantee US$7.8b funds for JAL

JAPAN is looking at guaranteeing about US$7.8 billion in funding to Japan Airlines Corp, a government source said yesterday, easing concerns that the carrier could run out of funds and helping send its shares 7 percent higher.

The 700 billion yen (US$7.8 billion) in guarantees would be included in an extra budget expected to be compiled this week and may cover investments and loans, the source said.

Debt-laden JAL, which is seeking its fourth state bailout since 2001, has warned it could face bankruptcy unless it addresses a pension shortfall of about 330 billion yen.

But a state-backed turnaround body will not be making a decision on whether to inject public funds into JAL until January.

"The news eased worries that a shortage of operating funds ahead of the year-end might force JAL to stop flying," said Mizuho Investors Securities senior analyst Takahiko Kishi.

But he added that government guarantees alone would not be enough to help JAL avoid bankruptcy as the carrier also needs to deal with other issues including its pension obligations.

"Unless JAL can solve its pension reduction and other internal issues, they are not likely to get a public injection because the government would not be able to win over taxpayers," he said.

The struggling carrier is also likely to gain some additional capital from foreign carriers.

American Airlines said last week that it and other members of the Oneworld airline alliance along with private equity fund TPG are willing to invest US$1.1 billion in JAL to prevent it defecting to Delta Air Lines and the rival Skyteam group.

Delta Air Lines has said it and other SkyTeam members are ready to offer JAL a total financial aid package of about US$1 billion.


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