Japan Air Plummets by Limit on Bankruptcy Speculation

Japan Air Plummets by Limit on Bankruptcy Speculation

Jan. 12 (Bloomberg) -- Japan Airlines Corp., Asia’s biggest carrier, plunged 45 percent to a record low on speculation it will file for the nation’s sixth-largest bankruptcy.

Prime Minister Yukio Hatoyama said today shareholders should take responsibility “in general” for JAL, which has been bailed out at least three times in nine years. American Airlines and TPG also increased an offer to invest in JAL or the restructured company by $300 million to $1.4 billion.

Hatoyama’s four-month-old government is set to break with the policies of Liberal Democratic Party-led administrations by allowing a court restructuring, according to three people familiar with the matter. The move will likely wipe out investors, including 1.6 million small shareholders owning about 60 percent of the stock.

“The retail pensioner, probably hoping for an LDP slice of honorable support from the government, just lost his kimono,” said Benjamin Collett, head of equities at Louis Capital Markets, Hong Kong Ltd. “Debt holders will be sweating to see what happens next on the restructuring side.”

American raised its bid to invest in JAL to help keep the carrier in the Oneworld alliance in the face of a rival offer from Delta Air Lines Inc. and Skyteam. The Japanese government has said that JAL will continue flying while restructuring.

“JAL is very important to oneworld,” American’s Chief Financial Officer Tom Horton told reporters in Tokyo today. The carrier also guaranteed JAL a $100 million boost in annual sales for three years from a proposed transpacific venture.

Delta and AMR Corp.’s American have both said that a JAL bankruptcy wouldn’t deter them from an investment.

Shares Slump

JAL, unprofitable in three of the last four years, fell by the daily limit to 37 yen at the close of trading in Tokyo. The yield on the carrier’s 2013 notes tripled last week to 52.2 percent, according to Japan Securities Dealers Association prices on Bloomberg. Japanese markets were closed yesterday for a national holiday.

Hatoyama, who ended half a century of near-continuous rule by the LDP last year, declined to comment on the possibility of JAL being delisted when speaking to reporters today in Tokyo. JAL spokeswoman Sze Hunn Yap declined to comment.

All Nippon Airways Co., Japan’s No.2 carrier, rose 4.2 percent to 295 yen, the highest since July. Skymark Airlines Inc., the nation’s largest discount carrier, jumped 19 percent.

Travel Slump

JAL, which has at least 1.5 trillion yen ($16 billion) of liabilities, has struggled because of competition from All Nippon, Skymark and bullet trains. Worldwide international air travel also likely fell about 4.1 percent last year, according to the International Air Transport Association, as the global recession sapped demand.

“Japanese airlines haven’t been doing well for a long time,” Tan Teng Boo, who oversees $300 million as managing director at iCapital Global Fund, said from Singapore. “They need some form of catalyst.” Tan said he has never owned JAL shares.

The global recession also caused General Motors Corp. and Chrysler to seek bankruptcy as consumers pared spending on job concerns. Mesa Air Group Inc., which operates flights for major U.S. carriers including Delta and UAL Corp.’s United Airlines, filed for Chapter 11 bankruptcy in the U.S. earlier this month.

Restructuring Plan

Under the proposed restructuring plan for JAL, Enterprise Turnaround Initiative of Corp. of Japan, a state-affiliated fund, will provide 300 billion yen of capital to JAL and a 400 billion yen credit line, the Yomiuri newspaper said last week. Creditors will be asked for about 350 billion yen in debt waivers and debt-for-equity swaps, the report said. An Enterprise Turnaround spokesman declined to comment.

The carrier plans to shed 13,000 jobs during a three-year restructuring by offering early retirements and shedding units, the Nikkei said today, without citing anyone. Haruka Nishimatsu, 62, chief executive of JAL since 2006, has already said he will step down.

JAL’s four biggest lenders, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and state-owned Development Bank of Japan were owed 429 billion yen at the end of March, according to the carrier.

Chika Togawa, a spokeswoman for Sumitomo Mitsui, wasn’t immediately available to comment. Mizuho spokeswoman Masako Shiono and Mitsubishi UFJ spokesman Takashi Takeuchi declined to comment on a possible JAL bankruptcy over the weekend. A Ministry of Finance official declined to comment today.

JAL previously won emergency loans from Development Bank under LDP administrations following the Sept. 11 terrorist attacks in 2001, the 2003 SARS outbreak and again last year as Japan suffered its worst postwar recession.

GM, the largest U.S. automaker, filed for Chapter 11 bankruptcy in June with $172.8 billion of liabilities. A U.S. government-backed restructuring allowed a smaller automaker to re-emerge the following month with about $11 billion in U.S. debt and a focus on fewer brand.

bloomberg