Source: The Standard Author: 01/20/2010
Subject Concerned: Government Aircraft Opinion Airlines Human Resource Aviation Fuel
Japan Airlines (JAL) filed for bankruptcy protection on Jan. 19, owing nearly US$26 billion, and vowed to slash 15,700 jobs and unprofitable routes as part of a plan to survive an industry beset by volatile fuel costs and fickle fliers.
Asia's largest airline by revenues will remain in the skies thanks to almost 1 trillion yen in support from a state-backed fund, Enterprise Turnaround Initiative Corp (ETIC).
But it must go through a sweeping restructuring under a new board and management.
Shareholders will be wiped out and lenders will forgive a larger-than-expected 730 billion yen in debt.
JAL, which flew at least 45 million passengers last year, will continue operations.
The bankruptcy is Japan's biggest corporate failure outside the financial sector since World War II, according to advisory firm Tokyo Shoko Research.
Bankruptcy will only be the beginning for an airline with depleted capital, facing headwinds such as rising fuel prices and shrinking passenger numbers, on top of hefty restructuring costs.
JAL, which has been bailed out by the government three times in the past 10 years, will replace many of its older, larger and less fuel-efficient planes. It also faces tough decisions about foreign capital and alliances.
Shares of JAL, which have fallen more than 90 percent since the start of the month, closed flat at 5 yen after trading down 2 yen to 3 yen. They will be delisted on Feb. 20, according to the stock exchange.
With a market value of about US$150 million, JAL is now worth less than a Boeing 747.
Prime Minister Yukio Hatoyama's government said it will provide the necessary support for JAL during its restructuring.
Following similar bankruptcies by overseas airlines such as Delta Air Lines and United Airlines, JAL plans to cut about a third of its 47,000 workforce and erase about two dozen unprofitable routes, sources said.
ETIC will support the carrier with about 300 billion yen in capital and a 600 billion yen credit line.
JAL will also need to make a decision about competing aid offers from oneworld alliance partner American Airlines and rival Delta, which wants to woo JAL to its SkyTeam group.
The carrier has spent two decades trying to recover public trust following a 1985 crash that became the world's worst single aircraft disaster in history, claiming 520 lives.
Kazuo Inamori, 77, the founder of electronics maker Kyocera Corp, was tapped last week to become JAL's new chief executive officer to oversee its restructuring.
JAL's restructuring plan also calls for increasing the fuel efficiency of its fleet, replacing 53 bigger jets with 33 small jets and 17 regional ones.