JAL is Japan’s flagship carrier and is in the top ten in the global airline industry in revenues and passenger volume.
Burdened by massive losses—the company estimates losses could exceed $13 billion—JAL is seeking a government-led restructuring effort. Nikkei, Japan’s biggest business newspaper, said that the bankruptcy filing could come as early as Jan. 19 and that the airline would lay off up to 13,000 employees as it seeks to cut costs and eliminate unprofitable routes.
JAL’s shares dropped 12 percent due to bankruptcy speculation to settle at 67 yen ($0.72) on the Tokyo Stock Exchange last Friday.
JAL’s biggest creditors—Mitsubishi UFJ Financial, Sumitomo Mitsui, and Mizuho Financial Group—reportedly agreed to support the proposed restructuring on Saturday. JAL and its government-appointed corporate turnaround specialist are looking for the banks to forgive $3.8 billion of its debt, which tops $5 billion in total.
“JAL can be reborn as an attractive company should it undergo decisive restructuring,” Ryota Himeno, an analyst at Mitsubishi UFJ Securities Co. told BusinessWeek. “It’s a positive for JAL if the reports on bankruptcy are true.”
Established in 1951, JAL quickly grew to become a regional power, linking Asia to the United States—it began a Tokyo-San Francisco route in 1953. JAL was privatized by the Japanese government in 1987. JAL is a member of Oneworld, one of the largest airline alliances in the world that also includes British Airways, American Airlines, and Cathay Pacific.
Like all airlines, JAL suffered from a decline in business travel due to the global recession and the H1N1 flu scare.
In October 2009 JAL applied to the state for public funding. Now, a bankruptcy is likely as the company continued to pile up losses. While the public has clamored for a bankruptcy for the airline that has drained taxpayers’ funds, certain Tokyo politicians and businesspeople worry that a bankruptcy would drive away customers.
On Sunday night, sources told BusinessWeek that JAL may dissolve its pension fund for employees if its employees do not accept a 30 percent cut in payouts. More than two-thirds of its retirees must agree to the payout slash.
Delta, American Interested in Stake
Despite its financial woes, JAL has caught the eye of two major U.S. carriers looking to expand their business. To Delta Airlines and AMR Corp., the parent of American Airlines, JAL’s bankruptcy could be an once-in-a-lifetime opportunity to own a stake in Asia’s biggest airline.
Companies are also attracted to JAL for its growth opportunities—its network is perfectly positioned to take advantage of the lucrative and expanding Asian travel market.
Delta and its SkyTeam partners have proposed a $1 billion offer for a minority stake in JAL. Under Japanese law, no foreign company can have majority ownership in its airline industry. If JAL accepts the deal, it will defect from Oneworld and join SkyTeam, a rival airline alliance.
To save its partnership, American Airlines last week increased its offer for a minority ownership to $1.4 billion, an increase of $300 million over its previous offer. So far, Japanese media has reported that JAL is considering leaving Oneworld, but the sentiment was not confirmed by JAL officials.
But the Business Travel Coalition, an industry trade group, argued that if JAL accepts Delta’s proposal it would lessen competition in the transatlantic travel industry. If JAL jettisons Oneworld for SkyTeam, two airline groups—SkyTeam and Star Alliance—would control more than 90 percent of U.S.-Tokyo routes.
