JAL seeks debt suspension, bridge loans after heavy half-year loss+

TOKYO, Nov. 13 Kyodo -
Struggling Japan Airlines Corp. said Friday it has applied for an out-of-court
debt restructuring process and bridge loans from creditor banks, resorting to
stopgap measures to remain operational after booking heavy losses for the first
half of the business year.

Japan's top airline needs 125 billion yen in funds by next March and has
already applied for the bridge loans, which will likely arrive by late
November, said Yoshimasa Kanayama, the company's executive officer in charge of
finance.
JAL, which is seeking a turnaround under state supervision, incurred a group
net loss of 131.22 billion yen for the April-September period with travel
demand crippled by the global economic downturn and the spread of the new
influenza.
The company swung deeply into the red from a year-earlier net profit of 36.67
billion yen, expanding its loss sharply from the 99.04 billion yen logged in
the April-June quarter even as it carried out cuts in personnel and
unprofitable routes.
The company retracted its earlier forecasts for the whole of fiscal 2009
through next March, citing considerable uncertainty as it seeks to rehabilitate
under a government-backed corporate turnaround body.
''We hope to put together as soon as possible a turnaround plan that will
satisfy the general public,'' JAL President Haruka Nishimatsu said at a press
conference in Tokyo, apologizing for the company's dire financial condition.
Nishimatsu said JAL's management feels ''very great responsibility'' and hinted
the team may step down after the company puts together a rehabilitation plan
and outlines a road map for its feasibility.
JAL will tap into an arbitration scheme called ''alternative dispute
resolution,'' in which a noncourt third-party will act as an intermediary
between the airline and its creditors to enable an immediate suspension of loan
payments and a debt waiver in the longer term.
The company is expected to receive the bulk of the loans from the state-owned
Development Bank of Japan, which plans to establish a pool of around 100
billion yen in loans to be extended to JAL until the end of fiscal 2009.
The remaining 25 billion yen in loans will be provided by its three major
private creditor banks -- Mizuho Corporate Bank, the Bank of Tokyo-Mitsubishi
UFJ and Sumitomo Mitsui Banking Corp. -- after obtaining a guarantee from the
government-backed Japan Bank for International Cooperation, according to JAL
officials.
Earlier this week, the government outlined broad rescue measures for
cash-strapped JAL including short-term financing from the DBJ that could later
be supported by a state guarantee if deemed necessary to avert a serious impact
on the airline's operations and passengers.
JAL has already sought support from the Enterprise Turnaround Initiative Corp.
of Japan for the debt restructuring scheme, but the company will need the
bridge loans to prevent running short of cash since it will take at least until
January for the entity to come to a decision on longer-term finance measures.
The company retracted its previous group net loss projection of 63 billion yen
for fiscal 2009, but JAL is expected to book a far larger-than-expected annual
loss, which would represent its fourth red ink in five years.
In addition to public funds, the Japanese airline is currently in separate
talks with two of the world's biggest air carriers -- Delta Air Lines Inc. and
American Airlines, a unit of AMR Corp. -- to receive capital investment.
Nishimatsu said the company needs to make an ''urgent decision'' by the end of
the year on the negotiations, adding it would be easier for JAL to stick with
American Airlines in view of the costs and time involved in withdrawing from
the oneworld grouping.
Delta has been courting JAL to switch to the rival SkyTeam alliance, but
Nishimatsu said a final decision has not been made yet, citing a division of
opinion inside the company.
The turnaround process is still fraught with uncertainty as JAL is scrambling
to secure two-thirds majority consent from among its retirees for drastic cuts
in pension benefits, which would remove an obstacle to the injection of public
funds in its fourth bailout by the government in less than a decade.
The government is studying a legal measure to enable mandatory cuts in pension
payouts if JAL fails to gain the necessary approval, but thorny questions also
remain over possible violation of personal property rights.
''I plan to explain the weight of receiving public funds to our retirees,''
Nishimatsu said, promising to reform JAL's high-cost pension system.
But Hitoshi Hosoya, an analyst at JPMorgan Securities Japan Co., wrote in a
recent report that JAL ''has yet to put together measures for improving its
earnings structure,'' pointing to deep-seated problems such as its high
personnel costs.
''So long as these structural issues go unresolved, we think it will be
difficult for JAL to transform itself into an airline with stable
profitability,'' Hosoya added.
For the first six months of the current business year, JAL booked a group
operating loss of 95.79 billion yen, compared with a year-earlier profit of
30.23 billion yen, on revenues of 763.95 billion yen, down 28.8 percent.
''International flights are a highly volatile business so the impact there was
big,'' Nishimatsu said, as revenues from JAL's international passenger business
sagged 42.8 percent from the previous year during the April-September period.
==Kyodo