Gov`t seeks JAL`s court-backed bankruptcy, trimmed int`l operations+

TOKYO, Jan. 8 Kyodo -
The government is making final arrangements to turn around Japan Airlines Corp.
through court-backed bankruptcy filing and massive trimming of its
international routes in a bid to ensure transparency in a process that is
likely to entail a massive use of public funds, sources close to the matter
said Friday.
JAL's key commercial creditor banks, which have previously favored an
out-of-court reorganization through debt forgiveness, seem to have reluctantly
agreed to the bankruptcy option, which would still ensure the continuance of
the carrier's key operations.
The state-backed Enterprise Turnaround Initiative Corp. of Japan, tasked with
the reconstruction of Japan's top airline, is aiming to announce a bailout
package later this month.
The government and the turnaround body are also considering various proposals
to extensively shrink JAL's international operations, including its withdrawal
from international routes that compete with rival All Nippon Airways Co., on
the back of concerns that a successful turnaround would not be possible without
a further reform of its loss-making routes.
Under the turnaround plan being compiled, ETIC is considering investing about
300 billion yen and will expand its credit line for JAL to around 450 billion
yen, up about 50 billion yen from its initial plan, the sources said.
About 100 billion yen of that credit line to be extended by state-owned
Development Bank of Japan may also be guaranteed by the entity, which can
currently raise up to 1.6 trillion yen in government-guaranteed funds.
The plan will aim to reduce about 700 billion yen of JAL's loans by seeking 350
billion yen in debt waiver by financial institutions including regional banks
and through cuts in corporate pension benefits.
The move to expand the credit line is aimed at ensuring the smooth continuation
of JAL's key operations even if it files for bankruptcy protection under the
Corporate Rehabilitation Law.
''We've done our best so far to avoid any interruption to JAL's operations,''
Prime Minister Yukio Hatoyama told reporters following a meeting with transport
minister Seiji Maehara. ''I understand we will continue to make similar efforts
in that direction.''
Growing fears of bankruptcy, however, sent JAL's share price plunging nearly 12
percent to 67 yen at the close of Tokyo trading on Friday.
Following a morning meeting with related Cabinet members including Finance
Minister Naoto Kan, Maehara denied the government has decided on the bankruptcy
option, but emphasized that JAL's operations will be protected regardless of
which restructuring process is pursued.
''We are making arrangements with each party with emphasis on how to revive JAL
by carrying out drastic reform, while making sure its aircrafts continue to
fly,'' Maehara, the minister of land, infrastructure, transport and tourism,
said, adding a failure to fix JAL's problems will call for more use of
taxpayers' money.
Even if JAL files for bankruptcy proceedings, the government is expected to
work with key creditor banks to make sure that JAL will be able to finance
daily business transactions including the purchase of fuel.
Sources said the government and creditor banks have called for a further review
of JAL's already announced plan to eliminate 16 of its international routes,
which they view as insufficient.
There is also a proposal for JAL to effectively withdraw from international
services outside of Asia and rely on potential partner airlines such as Delta
Air Lines Inc. in maintaining transpacific and other services through
''code-sharing'' arrangements where JAL would sell seats under its own airline
code on flights operated by other carriers, they added.
Some officials in the transport ministry have even suggested transferring a
part of JAL's Asian routes to Skymark Airlines, a Japanese discount carrier,
while Senior Vice Finance Minister Naoki Minezaki and other officials have
proposed JAL's complete withdrawal from international routes by transferring
them to ANA.
JAL officials have favored seeking an out-of-court restructuring -- also
earlier promoted by Mizuho Corporate Bank, the Bank of Tokyo-Mitsubishi UFJ and
Sumitomo Mitsui Banking Corp. -- amid concerns that a court-backed bankruptcy
filing would drive away more customers from the cash-strapped airline.
But sources said Kan, also deputy prime minister, has strongly advocated the
court-backed restructuring process within the government, leading the DBJ --
JAL's largest creditor bank -- and the transport ministry to support the
option.
If JAL applies for bankruptcy proceedings under the guidance of ETIC, the
company is expected to obtain court approval for a rehabilitation plan by
around July, they said.
==Kyodo