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You Are Here: Home » Africa/International » Japan Airlines shares drop 25% over bankruptcy worries
Shares of Japan Airlines Corp tumbled as much as 32 percent to a record low on Wednesday as expectations grew the struggling carrier will be restructured in bankruptcy court as part of a state bailout.
Sources have told Reuters that a state-backed turnaround fund is considering using a bankruptcy procedure as part of its revival plan for the carrier, a move that would likely wipe out the value of its shares.
Transport Minister Seiji Maehara said cabinet ministers would meet at 4 a.m. EST to discuss JAL. He said no decision had been made on whether JAL should face bankruptcy and that the state would support the carrier to ensure it maintains its operations.
JAL’s stock was down 25 percent at 66 yen as of 12:46 EST, after sliding earlier to a record low of 60. Nearly 360 million shares have changed hands, 10 times the daily average over the past three months and a record since a re-listing in 2002.
“Today’s slide reflects mounting expectations that JAL is headed for a court-led reorganization,” said Takahiko Kishi, an airline analyst at Mizuho Investors Securities.
A bankruptcy could complicate talks with American Airlines and Delta Air Lines, which are courting JAL with rival offers of investment to gain access to its network in Asia and closer ties on U.S.-Japan routes.
Japan Airlines applied for a bailout in late October from the Enterprise Turnaround Initiative Corp of Japan (ETIC), an organization of turnaround specialists that can draw on state-guaranteed funding to offer financial aid to ailing firms.
The ETIC is expected to make a decision on whether to support JAL next month. The ETIC can draw on 1.6 trillion yen ($17.4 billion) in state-guaranteed funding in the current fiscal year to March to make loans and investments.
The ETIC has told JAL’s creditors that it was considering a plan under which the airline would apply for court protection under the Corporate Rehabilitation Law, but it has not ruled out a private, out-of-court restructuring, sources have said.
“A court-led restructuring is right now the strongest possibility,” said one of the sources, speaking on condition of anonymity because the deliberations are not public.
Officials at the ETIC and JAL declined to comment.
Bankruptcy proceedings usually lead to a sharp cut in the payment of sales receivables and other creditor claims. There is a risk JAL would not be able to make payments for fuel, parts and other transactions needed to keep flying.
The ETIC plans to keep paying for such transactions if JAL files for bankruptcy, a source said, confirming an earlier report in the Nikkei business daily.
JAL, Asia’s largest carrier by revenue, is headed for its fourth annual loss in five years, hit by the global downturn in travel and a bloated cost base that makes it less efficient than domestic rival All Nippon Airways Co.
It is also struggling to get the two-thirds approval it needs from employees and retirees for cuts in their pension payouts so that it can get its pension shortfall of about 330 billion yen down to a more manageable size.
A Chapter 11-style bankruptcy would allow the ETIC to deal with creditors and various parties in a transparent manner, and could also be used to slice pension benefits if the carrier is unable to secure approval on its own.
But some of JAL’s creditors remain wary of a court-led workout because it could trigger bigger losses on their loans.
The airline’s main creditors include the state-owned Development Bank of Japan and Japan’s top three private lenders — Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group.
JAL was saddled with 1.5 trillion yen in total liabilities as of the end of September. At that level of debt, its bankruptcy would be the 6th biggest ever in Japan, ranking just below the 2001 collapse of retailer Mycal.
Source: Reuters