It is largest corporate failure in nation; govt will keep carrier going
TOKYO: Japan Airlines (JAL) filed for bankruptcy protection in the Tokyo District Court yesterday, but a state-backed entity will keep the debt-ridden carrier airborne.
The former national airline and two of its group companies together piled up 2.3 trillion yen (S$35 billion) in debt, making it the biggest corporate failure in Japan's post-war history.
Yesterday's move was the culmination of years of poor corporate governance at JAL, a reliance on government bailouts, a reluctance to cut excess staff and unprofitable routes, and failure to trim a very generous employee pension scheme.
Japan's Enterprise Turnaround Initiative Corporation (Etic), tasked with overseeing JAL's return to profitability within three years, is to invest 300 billion yen in the airline and ask creditor banks to forgive about 730 billion yen of its loans.
A rehabilitation scheme devised by Etic calls for the airline to recover its operating profits by March 2013 through drastic restructuring. This includes halving the number of JAL's subsidiaries and cutting 15,700 jobs, or 30 per cent, of its group workforce. JAL will also have to drop unprofitable routes.
Public funds routed through Etic will ensure there is no disruption to its domestic and international services. JAL flies to 35 countries and economies, including Singapore.
The government said in a statement yesterday that it fully backs the rehabilitation plan, and will seek the understanding and cooperation of foreign governments to enable JAL to continue its operations.
'We will have whatever funds are needed for JAL to continue its business,' said Finance Minister and Deputy Prime Minister Naoto Kan.
Etic will guarantee JAL's commercial obligations such as fuel purchases and honour its user mileage rewards and special discounts issued to shareholders.
While JAL's flights operated normally yesterday, its share price fell to a low of 3 yen at one point before finishing at 5 yen.
The Tokyo Stock Exchange said the airline's shares will be delisted on Feb 20.
Yesterday saw the resignation of JAL president Haruka Nishimatsu, who will be replaced by Mr Kazuo Inamori, 77. The founder of Kyocera Corp has a track record in resuscitating struggling firms and is close to the ruling Democratic Party of Japan (DPJ).
After a few months of uncertainty, the four-month-old Hatoyama administration decided earlier this month not to directly guarantee loans to cash-strapped JAL for fear that such a bailout would be unpopular with voters and could adversely affect the ruling party's hopes of winning Upper House elections in July.
A better option is a legal bankruptcy, which will not only ensure transparency in JAL's rehabilitation process, but also give the airline access to the massive funds that only Etic can provide.
Without these funds, JAL will not be able to undertake the drastic reforms needed to win public understanding for what is in fact a taxpayer-funded bailout.
Formed in 1951 and privatised in 1987, JAL sank deep into the red when global air travel was hit by the global economic crisis and the H1N1 flu epidemic.
'This is not the end of JAL,' Transport Minister Seiji Maehara told reporters yesterday. 'Today is the beginning of a process to keep JAL alive.'
Source: Straits Times, 20 Jan 2010.
Posts
No comments:
Post a Comment