Troubled JAL faces bankruptcy option
By Nathan Layne and Nobuhiro Kubo |
December 29, 2009, Tuesday
|
Print Edition
Print Edition
A STATE-BACKED turnaround fund may seek to put Japan Airlines Corp through bankruptcy court as part of a restructuring of the struggling carrier, according to two insiders.
JAL applied in October to the Enterprise Turnaround Initiative Corp of Japan, a fund established this year to help revive firms with state-guaranteed loans. ETIC will decide whether to support JAL as early as next month.
ETIC has discussed with JAL's creditors the possibility of using a Chapter 11-style bankruptcy procedure along with making fresh loans and investment, but has not ruled out a restructuring outside of bankruptcy court, the two sources said.
Government officials have said a court-led reorganization was a possibility but the state is at the same time wary of the potential disruption to air travel. JAL is Asia's largest carrier by revenue and handles more than half of air traffic in Japan.
Investment
A bankruptcy could also complicate talks with American Airlines and Delta Air Lines, which are courting JAL with rival offers of investment to gain access to its network in Asia and closer ties on United States-Japan routes.
"If JAL really were to file for bankruptcy, that would cause chaos," said Kotaro Toriumi, an airline analyst and professor at Josai International University. "At this moment I think the chance of a JAL bankruptcy is still quite small."
In addition to ongoing talks with creditors, ETIC met with JAL over the weekend and explained that bankruptcy was being considered as an option, the two sources said.
ETIC and JAL declined to comment.
The chances of bankruptcy appeared to increase last week when Finance Minister Hirohisa Fujii said the state would not back any more loans to JAL, raising the risk it could run out of cash amid a slump in travel demand.
JAL was saddled with 1.5 trillion yen (US$16.4 billion) in total liabilities as of the end of September. At that level its bankruptcy would be the sixth biggest in Japan, ranking just below the 2001 collapse of retailer Mycal.
The latest development could give pause to American Airlines and Delta, which have been pitching themselves as the ideal partner to help JAL rebuild itself.
JAL applied in October to the Enterprise Turnaround Initiative Corp of Japan, a fund established this year to help revive firms with state-guaranteed loans. ETIC will decide whether to support JAL as early as next month.
ETIC has discussed with JAL's creditors the possibility of using a Chapter 11-style bankruptcy procedure along with making fresh loans and investment, but has not ruled out a restructuring outside of bankruptcy court, the two sources said.
Government officials have said a court-led reorganization was a possibility but the state is at the same time wary of the potential disruption to air travel. JAL is Asia's largest carrier by revenue and handles more than half of air traffic in Japan.
Investment
A bankruptcy could also complicate talks with American Airlines and Delta Air Lines, which are courting JAL with rival offers of investment to gain access to its network in Asia and closer ties on United States-Japan routes.
"If JAL really were to file for bankruptcy, that would cause chaos," said Kotaro Toriumi, an airline analyst and professor at Josai International University. "At this moment I think the chance of a JAL bankruptcy is still quite small."
In addition to ongoing talks with creditors, ETIC met with JAL over the weekend and explained that bankruptcy was being considered as an option, the two sources said.
ETIC and JAL declined to comment.
The chances of bankruptcy appeared to increase last week when Finance Minister Hirohisa Fujii said the state would not back any more loans to JAL, raising the risk it could run out of cash amid a slump in travel demand.
JAL was saddled with 1.5 trillion yen (US$16.4 billion) in total liabilities as of the end of September. At that level its bankruptcy would be the sixth biggest in Japan, ranking just below the 2001 collapse of retailer Mycal.
The latest development could give pause to American Airlines and Delta, which have been pitching themselves as the ideal partner to help JAL rebuild itself.
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