Japan Airlines, a once-proud flag carrier crippled by huge debts, has opted for bankruptcy as part of a painful overhaul involving thousands of job cuts, route closures and asset sales.
Asia’s biggest airline is set to keep flying with an injection of billions of dollars in public aid, while undergoing a revamp that will reportedly see one-third of its workforce depart as it bids to halt its financial tailspin.
According to local media, JAL’s management formally decided Tuesday to begin bankruptcy proceedings, becoming one of the highest profile victims yet of Japan’s economic woes. A court filing was expected later in the day.
With estimated debts of about two trillion yen ($A23.75 billion), a JAL bankruptcy would be Japan’s biggest failure outside the financial sector since World War II, according to Tokyo Shoko Research, an advisory firm.
JAL shares plunged to an all-time low of just three yen (three US cents) at one point Tuesday, reducing the market value of the group to about $US90 million ($A97.15 million), far less than even the cost of a new jumbo jet.
Investors are expected to be left out of pocket if JAL goes bust, although Tokyo says JAL will stay in the skies during the restructuring, which is expected to be similar to the process used for US auto giant General Motors.
“The government has prepared various support measures,” transport minister Seiji Maehara told reporters. “We want to help (JAL) to recover while operating safely,” he added.
The government has tapped Kazuo Inamori, a 77-year-old entrepreneur and ordained Buddhist monk, to run the stricken airline during its overhaul.
Inamori is one of Japan’s most respected business executives and management gurus, having founded both high-tech parts supplier Kyocera Corp. and a company that later became part of KDDI Corp., now Japan’s number two telecoms firm.
“He seems to have charisma, which is a good thing,” said Makoto Murayama, an analyst at Nomura Securities.
“At the moment JAL employees don’t really want to admit that they work for the company. If someone can restore their pride and lead them, the chances of a recovery could increase.”
Eyeing its lucrative Asian landing slots, US carriers American Airlines and Delta Air Lines are now in a bidding war for a slice of JAL.
Dutch carrier KLM said on Monday that talks involving Air France-KLM and Delta on JAL’s future were “going well”, after reports that the Japanese airline had agreed to tie up with Delta and switch to the SkyTeam alliance.
The government was expected to announce Tuesday a new financial lifeline for JAL, which has received a series of public bailouts and lost about $US1.5 billion ($A1.62 billion) in the six months to September.
Thousands of job losses
JAL is reportedly set to slash more than 15,000 jobs while withdrawing from unprofitable routes and selling hotels and other assets.
Experts say radical downsizing is long overdue at JAL, which has been hobbled by high costs since its days as a state-owned flag carrier and is overexposed to unprofitable domestic and overseas routes.
“The problem is that the government lacks a clear vision on what to do with JAL’s international network,” said Yasuhiro Matsumoto, a credit analyst at Shinsei Securities. “They are focused on assisting JAL.”
According to Japanese media, the company is set to receive an injection of government funds worth several hundred billion yen (several billion dollars) under a prepackaged restructuring plan that would see it file for bankruptcy.
At the same time JAL’s creditor banks are expected to be asked to forgive loans worth several hundred billion yen.
JAL has been hit hard by industry turbulence unleashed by the September 11, 2001 terror attacks in the United States, the Iraq war and the global financial crisis, as well as global health scares in the past decade.