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Tuesday, Feb. 2, 2010
ETIC looks to lighten JAL's load
Turnaround body plans to clip carrier's wings so it can fly right
Japan Airlines Corp.'s bankruptcy filing last month has cast the spotlight on Enterprise Turnaround Initiative Corp. of Japan, a government-backed corporate rehabilitation body.
JAL's salvation will largely depend on ETIC's ability to turn the flagship carrier around.
Following are questions and answers about ETIC:
Why and how was ETIC founded?
The Diet passed a law to create ETIC, and it began operating last Oct. 16 with a five-year mandate to revive small and midsize firms that play key roles in supporting regional economies.
ETIC's Web site says the body was created amid the global financial crisis triggered by the collapse of Lehman Brothers.
ETIC received ¥10 billion in government funds and some 100 private-sector financial institutions together chipped in another ¥10 billion.
The main mission of ETIC was originally to support small and midsize companies, but the Democratic Party of Japan expanded its scope to cover the failures of big companies as well.
ETIC can thus salvage companies regardless of size, including a corporate behemoth like JAL.
Who works for ETIC?
The turnaround body's president is Hiroshige Nishizawa, former head of Tokyo Tomin Bank. At the start of the year, ETIC had 101 employees.
Those actually handling corporate rehabilitation procedures are lawyers and other turnaround professionals, including former workers at a now-defunct government-backed bailout agency, Industrial Revitalization Corp. of Japan.
IRCJ, which was in operation from 2003 to 2007, played a similar role as ETIC.
Other employees are on loan from ministries to help ETIC work out various arrangements with the government.
ETIC has an expert committee that makes final decisions on whether to support troubled companies. The committee operates under a mandate from ETIC's board of directors.
The committee consists of three to seven directors, more than a half of whom must be from the outside. It is currently chaired by attorney Hideo Seto.
How will ETIC-led rehabilitation proceed?
A company in need of help gets a preliminary consultation with ETIC, which in turn gauges if revitalization is possible and what the target firm is worth, assessing its assets and debts.
The company drafts a turnaround plan under the supervision of ETIC, which then decides whether to provide support.
Once given the green light, ETIC supports the company by, for example, buying its debt, asking creditors to forgive debt and providing resources necessary for a turnaround, including personnel and capital.
ETIC is allowed to buy debt and invest in and provide loans to companies, and can raise up to ¥1.6 trillion in government-guaranteed funds.
What companies are eligible for ETIC rescue?
Troubled firms considering turning to ETIC must be saddled with excessive liabilities, but they also must have viable business resources.
In terms of business scale, any company can apply for ETIC aid. Public corporations, however, do not qualify. These include Local Housing Corp., Local Road Public Corp. and Local Development Public Corp.
In addition, public-private ventures, such as companies financed more than 25 percent by the central or local governments, are not eligible.
How will ETIC turn around JAL?
ETIC has yet to offer specifics, other than downsizing. It aims to finalize the plan and get court approval by the end of August.
JAL filed for bankruptcy under the Corporate Rehabilitation Law on Jan. 19, and ETIC immediately declared its support for the carrier.
According to ETIC's rehabilitation draft, JAL will cut 15,661 jobs, or about 30 percent of its workforce, by the business year ending in March 2013.
JAL also plans to cut 31 unprofitable routes and sell about half of its affiliated companies to concentrate on its core airline business.
While JAL is expected to post an operating loss of ¥265.1 billion for this fiscal year, which ends in March, ETIC said it will reconstruct the company to post a ¥90.4 billion operating profit after three years. Also in the works is the delisting of the carrier's stock.
Does ETIC have any other ailing companies targeted?
JAL is currently ETIC's only aid recipient. But more than 130 firms have consulted with ETIC so far, according to Wataru Seki, a spokesman for ETIC.
There have been media reports that troubled PHS carrier Willcom Inc. may seek ETIC support.