JAL files for bankruptcy as it seeks revival with massive gov't aid+

TOKYO, Jan. 19 Kyodo -
Japan Airlines Corp. filed for bankruptcy protection on Tuesday in the biggest
nonfinancial corporate failure in Japan's postwar history, paving the way for a
massive government effort to keep the flagship carrier flying with the use of
public funds.
Japan's top airline, which reported combined liabilities of 2.32 trillion yen
together with two of its subsidiaries, will aim to turn itself around in three
years under a state-supervised restructuring process to create a leaner company
with extensive cuts in jobs and routes.
Even though the bankruptcy filing had been widely expected, the government
scrambled to contain potential fallout from the country's first collapse of a
major airline as JAL has more than 13,000 business partners in Japan alone and
operates flights to 35 countries and regions.
To keep the debt-ridden carrier afloat, a government-backed body which will
sponsor JAL's turnaround efforts said it will invest 300 billion yen in the
carrier with the use of public funds and set aside 600 billion yen in a credit
line with the state-owned Development Bank of Japan.
''Today is the starting point for JAL's revival,'' transport minister Seiji
Maehara said at a news conference. ''JAL will remain.''
Prime Minister Yukio Hatoyama added that the government will support JAL's
efforts to avoid any operational disruption for the general public.
Haruka Nishimatsu resigned Tuesday from the post of JAL president and top
management will be transferred in February to Kazuo Inamori, a charismatic
entrepreneur who founded Kyocera Corp., a major Japanese technology company.
Inamori, 77, has a track record of reviving struggling firms.
''We have been given a final chance by the government, financial institutions,
shareholders and the general public,'' an apologetic Nishimatsu said at a news
conference, admitting the company had failed to respond flexibly to changes in
consumer demand.
''I am confident we will revive as a strong airline company that will once
again represent Japan,'' he added.
Meanwhile, in a statement, Inamori said, ''JAL symbolizes the slumping Japanese
economy so I accepted the job with the hope that its turnaround, if realized,
would have a positive impact on the entire economy.''
JAL and two of its key subsidiaries -- Japan Airlines International Co. and JAL
Capital Co. -- reported liabilities totaling 2.32 trillion yen as they filed
with the Tokyo District Court for protection under the Corporate Rehabilitation
Law.
The combined liabilities represent the largest corporate failure in Japan since
World War II, excluding financial and insurance firms, according to private
credit-research agency Teikoku Databank.
''If JAL was not the biggest airline company, it would have been liquidated,''
Maehara said, referring to the size of JAL's debt.
The company also filed for Chapter 15 proceedings in the United States, which
is used to deal with bankruptcy cases in foreign countries, while the
government also used its diplomatic channels and exposure to the foreign media
to ensure smooth overseas operations.
Under a rehabilitation plan unveiled by the state-backed Enterprise Turnaround
Initiative Corp. of Japan, JAL will seek to return to profitability with an
operating profit of 24.1 billion yen by fiscal 2011 through March 2012.
''It is important to obtain public understanding when injecting a massive
amount of government funds,'' ETIC President Hiroshige Nishizawa said at a
joint press conference with JAL. ''It is essential to ensure that the
rehabilitation process is fair and just, as well as transparent.''
JAL will shrink its operations and improve its cost structure by cutting around
15,700 jobs, or about 30 percent of its group workforce, by the business year
through March 2013, and scrap 31 unprofitable domestic and international routes
in addition to those already announced.
Through a prepackaged restructuring scheme, similar to the procedure used for
rehabilitating General Motors Corp. in the United States, JAL's creditors will
be asked to waive around 730 billion yen in liabilities, including about 350
billion yen by financial institutions. JAL's current liabilities are estimated
to exceed its assets by over 860 billion yen, according to ETIC.
In addition to the burden placed on creditor banks, shareholders will also be
asked to clarify their responsibility through a 100 percent equity reduction.
JAL's shares, which dropped to 3 yen at one point during Tuesday trading, will
be delisted from the Tokyo Stock Exchange on Feb. 20.
In a move aimed at placating business partners irked by news of JAL's
bankruptcy, ETIC has pledged to provide guarantees on receivables for payments
of fuel and other commercial transactions. User mileage points and special
discount coupons already issued to shareholders will also be safeguarded.
Markets generally welcomed JAL's court-led rehabilitation, pinning hopes on
bold restructuring efforts to finally turn around a company that has repeatedly
resisted calls for change and sought refuge under an overprotective government.
''There will be a stigma attached to bankruptcy, but I think it is far better
for JAL to fully revive itself and recover confidence'' through transparent and
drastic court-led restructuring, said Ryota Himeno, a transportation analyst at
Mitsubishi UFJ Securities Co.
The airline, which was set up as a government-owned entity in 1951 and fully
privatized in 1987, sank deeply into the red after the global economic
recession and the spread of new influenza sharply eroded travel demand.
Long before the recent slump in the aviation industry, JAL had been dogged by
safety problems, entrenched ties with the government and labor unions, flawed
management, and a high-cost structure including costly pension benefits in the
course of its 59-year history.
==Kyodo
2010-01-19 23:36:20