JAL turnaround plan may include bankruptcy option+

TOKYO, Dec. 28 Kyodo -
A government-backed corporate turnaround body has told Japan Airlines Corp.
that it is considering the option of JAL's filing for bankruptcy as part its
rehabilitation plan, according to sources close to the matter.
The Enterprise Turnaround Initiative Corp. of Japan, charged with the
reconstruction of the cash-strapped airline, also submitted a separate proposal
that includes the option of a debt waiver of more than 200 billion yen by JAL's
creditor banks, including the state-owned Development Bank of Japan, the
sources said.
ETIC plans to decide on a financial package for JAL, possibly by late January,
but whichever of the two schemes it chooses, the body is likely to invest
between 200 billion to 300 billion yen. And the government will fully support
JAL to ensure there are no disruptions to the carrier's flight operations
either at home or abroad, they added.
The entity plans to make a final decision after consulting with JAL's main
creditor banks on whether to proceed with the airline's turnaround process
using the Corporate Rehabilitation Law or an out-of-court restructuring mainly
through a debt waiver.
According to the sources, ETIC President Hiroshige Nishizawa on Friday met with
JAL's senior executives and told them it is studying the two proposals.
Japan's top airline, heading for its fourth annual loss in five years, has sent
out letters to the company's retirees to seek their approval for substantial
cuts to their pension benefits and is expected to receive their replies by Jan.
12.
If the company fails to obtain the necessary two-thirds approval from the
retirees to implement the pension reform, ETIC is expected to use the
bankruptcy option, but if it succeeds in clinching approval, JAL plans to
strongly urge ETIC for a rehabilitation plan centering on a debt waiver.
''People might get the image that we are going under and it may accelerate
customer churn,'' a senior JAL official said.
Opinion is also divided within the government with Deputy Prime Minister Naoto
Kan, also state minister for national strategy overseeing ETIC, believed to be
pushing for the use of bankruptcy to clinch public understanding for the use of
taxpayers' money to reconstruct JAL, informed sources said.
If bankruptcy procedures are pursued, it would make it possible for JAL to
drastically reduce liabilities, including corporate bonds, and make it easier
for the company to seek shareholder responsibility including the option of
delisting.
If ETIC announces its support at the same time as the option is being used, it
would help to alleviate uncertainties about JAL's future and make it easier to
obtain public understanding for the injection of public funds.
On the other hand, there are risks including the possibility of JAL being asked
to make transactions using only cash for fueling activities abroad, which would
make it necessary for the airline to raise up to 600 billion yen in funds. That
would, in effect, require a massive injection of funds bigger than that
involving a debt waiver.
If it decides to become a sponsor, ETIC is expected to seek JAL, for its part,
to scrap about 45 international and domestic routes and lay off about 9,000
people.
ETIC is able to purchase debt from, invest in and provide loans to companies
saddled with liabilities deemed excessive and can raise up to 1.6 trillion yen
in government-guaranteed funds for the current business year through March.
Meanwhile, sources close to the development said Monday that the government has
decided to nearly double the upper limit of ETIC'S access to state-guaranteed
investments and loans to 3 trillion yen for fiscal 2010.
The body, which was established in October, has so far received requests for
financial support from around 130 companies in addition to JAL.
==Kyodo
2009-12-28 23:33:40