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Friday, Oct. 30, 2009

JAL to seek revival under state

New turnaround body will allow access to public, private funds


Staff writer

After about a month of evaluating the assets of Japan Airlines Corp., the transport ministry and a reconstruction task force said Thursday that the struggling carrier needs to go through reconstruction under the Enterprise Turnaround Initiative Corp.

JAL released a statement saying it has begun consulting with ETIC on seeking its help for reconstruction.

ETIC is a Tokyo-based corporation jointly set up by the government and about 130 private-sector financial institutions to rehabilitate debt-ridden companies.

ETIC, which began operating earlier this month, is able to buy debt and invest in and provide loans to companies saddled with liabilities deemed excessive, and can raise up to ¥1.6 trillion in government-guaranteed funds.

"I expect that ETIC will accept the application and will start its own asset evaluation of the company," transport minister Seiji Maehara told a news conference.

Earlier in the day, Maehara received the final proposal from the task force of business reconstruction professionals.

"As a conclusion, if the company downsizes its equipment and its organization, reviews routes and cuts legacy costs, its reconstruction is possible," Maehara said, noting that while the task force's report includes some specifics, he declined to disclose them.

He stressed that ETIC will be in charge of the reconstruction, so disclosing the task force's specific plans would be meaningless and could possibly make ETIC's job tougher.

Shinjiro Takagi, the head of the task force, said separately that public funds, loans and investments will be necessary to reconstruct JAL, but declined to specify the amount of financial aid necessary.

The task force's proposal reportedly centered on a capital reinforcement of up to ¥300 billion and ¥250 billion in debt waivers from JAL's creditor banks.

It was said to include cutting 13,000 of the JAL group workforce by the end of March 2015 and restructuring 45 unprofitable domestic and international routes.

Asked why the task force did not propose that JAL resort to legal measures to eliminate its liabilities, such as applying for bankruptcy under the corporate rehabilitation law, Takagi said it would badly damage the company's reputation and thereby cause too much risk for Japan's top airline.

"Many JAL operations involve international dealings on credit, and JAL's business directly depends on (reactions of) passengers. So the risk to its reputation would be too big," Takagi said.

Once JAL makes an official application, ETIC will re-evaluate the carrier's assets and decide whether to provide financial aid, which could come before year's end.

With JAL facing a cash shortage as early as next month, the airline is likely to seek government guarantees of ¥180 billion in bridge loans to be provided mainly by the government-owned Development Bank of Japan.

With its troubled management, JAL has suffered chronic deficits.

In 2007, it got ¥140 billion to strengthen its capital through a public stock offering. It also issued ¥150 billion worth of new shares to a third party in 2008.

JAL had to ask for a ¥100 billion special loan in June, only to post a record April-June group net loss of ¥99.04 billion.

Information from Kyodo added



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