JAL starts consulting to seek help for reconstruction

The transport Ministry and reconstruction said on Thursday that the struggling carrier like JAL need to go through reconstruction under the Enterprise Turnaround Initiative Corp. (ETIC), after around a month evaluating Japan Airlines Corp's assets.

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

ETIC is a Tokyo based corporation jointly set up by the government and have 130 private sector financial institutions to rehabilitate debt ridden companies. ETIC, which began operating earlier this month, ia able to buy debt and invest in and provide loans to companies saddled with liabilities, deemed excessive, and can raise up to Yen 1.6 trillion in government guaranteed funds.

Transport minister Seiji Maehara stressed that ETIC will be in charge for reconstruction, so disclosing the task force's specific plan would be meaningless and could possibly make ETIC's job tougher.

The head of the task force, Shinjiro Takagi said separately that the 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 Yen 300 billion and Yen 250 billion in debt waivers from JAL's creditors banks. The scheme include to decrease 13,000 of the JAL group workforce by the end of March 2015 and make 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 caused to much risk for Japan's top airline.

"Many  JAL operations involve international dealings on credit, and JAL's business directly depends on passengers. So the risk to its reputation would be too big," Takagi said. Once JAL makes an official application, ETIC will reevaluate 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 Yen 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 Yen 140 billion to strengthen its capital through a public stock offering. It also issued Yen 150 billion worth of new shares to a third party in 2008.

JAL had to ask for a Yen 100 billion special loan in June, only to post a record April-June group net loss of Yen 99.04 billion.
(Kyodo - The Japan Times Online)