JAL to seek revival under state direction via turnaround body+

TOKYO, Oct. 29 Kyodo - Struggling Japan Airlines Corp. said Thursday it will seek to turn itself around under state direction, using a recently launched government-affiliated corporate turnaround body to gain access to both private and public funds.

Transport minister Seiji Maehara received the final report on JAL's
reconstruction plan from a government-appointed task force the same day, which
concluded that the cash-strapped airline's revival is ''clearly possible'' if
it cuts its workforce, aging aircraft, unprofitable routes and legacy costs.
''In order to turn around the JAL group, a considerable amount of funds and
strong corporate governance will be necessary,'' Maehara said in quoting the
task force report, which recommended that JAL apply to the entity called the
Enterprise Turnaround Initiative Corp. of Japan.
Maehara declined to provide further details of the report, but Shinjiro Takagi,
the head of the task force, told reporters that loans and ''large equity
investments'' through the use of public funds will be necessary to reconstruct
the company.
''We were planning to draw a road map for revival though negotiations with
financial institutions and the labor union, but we are handing over the
baton,'' Takagi said. ''Our mission is finished today.''
The minister of land, infrastructure, transport and tourism, also said the
government will decide on its own financial measures for JAL at a Cabinet
meeting Friday morning. The government is also expected to set up its own
separate task force to address the JAL issue.
Sources familiar with the matter said earlier that the government will provide
state guarantees for 180 billion yen in bridge loans, mainly from the
state-owned Development Bank of Japan, to keep the airline from facing a cash
shortage before year-end.
''If JAL falls into a condition in which it cannot fly, it will have an
extremely large impact on the Japanese economy (as a whole), regional economies
and foreign ties,'' Maehara said. ''It is a single company, but I believe it
has a very strong public color.''
The Democratic Party of Japan faces a tough task in coming up with a viable
financial rescue package for Japan's top airline as it seeks to convince
skeptical creditor banks and voters that the use of taxpayers' money will not
be rubber stamped without fixing JAL's high-cost structure, including high
pension fees.
The government is considering formulating special legislation to allow a
mandatory reduction in pension payments and also plans to pursue the management
responsibility of current and former top company officials.
But details of how to slash legacy costs remained vague with Maehara telling
reporters that a decision on the pension problem will be left to the corporate
turnaround body following a meeting on the issue the same day with Akira
Nagatsuma, health, labor and welfare minister.
Once JAL submits an official application to ETIC, the entity will reevaluate
the airline's assets and decide whether to provide financial aid.
ETIC, which began operating earlier this month, is able to purchase debt,
invest in and provide loans to companies saddled with liabilities deemed
excessive, and raise up to 1.6 trillion yen in government-guaranteed funds.
JAL, which is anticipating a second consecutive year of huge losses, has sought
three government bailouts over the past decade and is now set to be rescued for
a fourth time as it combats an erosion in travel demand amid the global
economic recession and the spread of the new influenza.
ETIC is expected to take into account the task force's report, likely centering
on policy recommendations for a capital reinforcement of up to 300 billion yen
and 250 billion yen in debt waivers from JAL's creditor banks.
An earlier draft of the report also said JAL will cut its group workforce by
around 13,000 by the end of March 2015 and scrap 45 unprofitable domestic and
international routes, according to sources.
Maehara emphasized that the month-long compilation of the report by a task
force was necessary to assess JAL's real financial condition, criticizing the
previous government led by the Liberal Democratic Party for failing to carry
out adequate asset evaluation before approving repeated aid measures for the
company.
''I do not think the process was misguided since (the decision) to seek support
from ETIC was based on the report from the task force,'' Prime Minister Yukio
Hatoyama said.
==Kyodo