JAL’s imminent bankruptcy to be part of state-sponsored restructuring

JAL’s imminent bankruptcy to be part of state-sponsored restructuring

With Prime Minister Yukio Hatoyama deciding to reject offers of equity investment in the debt-ridden Japan Airlines Corp (JAL) from US rivals American Airlines and Delta Airlines, the Japanese carrier would likely undergo state-sponsored restructuring.

As per reports, the 1951-founded Tokyo-based Japan Airlines, which is the largest Asian carrier and is currently burdened with 1.5 trillion yen ($16 billion) of liabilities, is expected to file for bankruptcy in the next few days.

According to the information forwarded by three unnamed sources ‘in the know,’ with the Finance Ministry and JAL’s biggest lenders all favoring a court restructuring for the carrier, Hatoyama has broken with Liberal Democratic Party (LDP) predecessors who bailed out JAL three times in the past nine years – after the September 11 terrorist attacks in 2001; the 2003 SARS outbreak; and amid recession last year.

With Hatoyama set to push through JAL’s bankruptcy instead of granting unrestricted loans, the looming bankruptcy would be part of a state-sponsored reorganization - which will probably downsize the carrier, and put in new management, before initiating renegotiations with its partners.

Noting that the government was fulfilling its pledge of cutting “wasteful” expenditure, analyst Satoshi Yuzaki, of Takagi Securities Co. in Tokyo, said: “It’s impossible that JAL would have gone bankrupt in the LDP era. The quick decision-making by Hatoyama’s government is commendable.”