Japan Airlines turns to govt for bailout

Japan Airlines turns to govt for bailout

Tokyo: Japan Airlines Corp said it would apply for assistance from a state-backed corporate turnaround body, setting the stage for a large injection of public funds into the troubled airline.

The government has been scrambling to secure financing and map out a restructuring plan for JAL, which is headed for its fourth annual loss in five years, weighed down by $15 billion in debt and crippling legacy costs.

JAL, Asia’s largest airline by revenue, said it started preliminary talks with the Enterprise Turnaround Initiative Corp, a body of turnaround specialists established by the government this month to buy debt of and invest in struggling but viable firms.

“JAL will need huge money, huge public money, through both capital and loans," said Shinjiro Takagi, the head of a transport ministry taskforce trying to rescue JAL. “We have decided the ETIC will be suitable for the public money." The ETIC, which can draw on up to 1.6 trillion yen ($17.8 billion) in state-guaranteed funding, will decide on whether it can help JAL after studying its assets and its restructuring plan - a process that could take a few months.

“The government is expected to accept JAL’s request for turnaround assistance, as the airline is a special case in view of the heavy industry regulation by the transport ministry and the oligopolistic market," said Junko Nishioka, chief economist at RBS Securities.

Transport Minister Seiji Maehara said that reviving the airline was very important to the Japanese economy.

“JAL’s operation covers more than a half of Japan’s sky and considering its global network and how it connects regional economies, its revival is extremely important for Japan’s economy as well as for our policy," Maehara told parliament.

JAL shares closed Thursday up 2.7% at 115 yen, outperforming a 1.8 percent fall in the Nikkei average.

The Nikkei business daily reported the government was considering a new law forcing the reduction of pension benefits to retirees of the struggling airline if it received public funds, which would address a key hurdle to its survival.

A JAL official said the airline is not in a position to comment on the Nikkei report.

Japanese media have said JAL may need some 800 billion yen ($8.8 billion) for future retirement and pension payments, double the 408 billion yen balance in its corporate pension system.

Senior vice finance minister Naoki Minezaki said the government could not guarantee bridge loans to the troubled carrier without assurances it would cut costs.

The government plans to submit legislation to parliament next year, though differing views within the government make it unclear what provisions the bill will contain, the Nikkei said.

Another proposal is for the state-owned Development Bank of Japan - already JAL’s biggest lender - to loan JAL a further 200 billion yen this year and for the state to guarantee the loans once the legislation is passed, the Nikkei said.

The proposal would also likely to include plans to support the overall aviation industry such as a reduction in airport landing fees, the newspaper said.