Japan Airlines stock tumbles 32%

Thu, Dec 31, 2009, 00:00

JAPAN AIRLINES stock fell as much as 32 per cent to a record low yesterday on growing expectations the struggling carrier was headed for bankruptcy under a state restructuring plan.

A government-backed turnaround fund has told Japan Airlines’ (JAL) main creditors it was leaning towards a bankruptcy proceeding as part of a rescue package for Asia’s largest carrier by revenue, according to sources with knowledge of the matter.

A bankruptcy could wipe out the value of JAL’s shares and trigger greater losses for creditors, which include the state-owned Development Bank of Japan and the country’s three largest private banks.

With $16 billion (€11.1 billion) in total debts a JAL failure would rank as the sixth-biggest in Japan. It could also affect talks with American Airlines and Delta Air Lines, which are courting JAL with rival offers of financial aid.

Shares in JAL closed 23.86 per cent lower at 67 yen (€0.51), knocking its market value down to about $2 billion.

The stock earlier tumbled as low as 60 yen and volume surged to nearly 400 million shares, a record since the carrier relisted in 2002. “If JAL really does go into a court-led reorganisation the shares would literally become waste paper, and that’s the nightmare scenario for shareholders,” said senior strategist at Nikko Cordial Securities Tsuyoshi Kawata.

The chances of bankruptcy appeared to increase last week when finance minister Hirohisa Fujii said the government would not back any more loans to JAL.

Transport minister Seiji Maehara said the government was looking into establishing a new lending framework for JAL using the Development Bank of Japan. JAL has already used 55 billion yen of a 100 billion yen credit line recently extended by the state-owned bank.

“Money is the biggest point when it comes to addressing growing worries over creditworthiness,” Mr Maehara said after a meeting of cabinet ministers on how to restructure JAL.

The company applied in October for a bailout from the Enterprise Turnaround Initiative Corp of Japan (ETIC), an organisation of turnaround specialists that can draw on 1.6 trillion yen in state-guaranteed funds for ailing firms. The ETIC is expected to make a decision on whether to support the airline next month.

The ETIC has told JAL’s creditors it was considering a plan under which the airline would apply for court protection under the corporate rehabilitation law, a process similar to Chapter 11 in the US, according to sources.

While the ETIC sees a bankruptcy as the most transparent and effective way to restructure the carrier, it has not entirely ruled out a private restructuring in co-ordination with debt forgiveness from its main banks, sources said.

There is a risk JAL would not be able to make payments for fuel, parts and other transactions needed to keep flying.

JAL is headed for its fourth loss in five years and has been hit by the global downturn in travel and a bloated cost base that makes it less efficient than domestic rival All Nippon Airways. – (Reuters)