Japan Airlines heads towards bankruptcy

Shares in Japan Airlines plummeted 81% today to just ¥7 amid strong indications that the firm will file for bankruptcy and have its shares delisted as early as next week. Asia's biggest airline is expected to submit itself to a government-led rehabilitation package that will include a complete reduction of its capital. Investors, whose shares were each worth ¥213 at the beginning of last year, will see the value of their investment wiped out. In return, the Enterprise Turnaround Initiative Corporation [ETIC], a state-run body formed in October to oversee JAL's rehabilitation, will offer ¥300bn (£2bn) in fresh investment. In addition, the body is reportedly preparing to offer a ¥600bn credit line – ¥200bn of it from the state-owned Development Bank of Japan – to avert an immediate cash crisis and keep JAL planes in the air. On Tuesday, the government reportedly secured the agreement of JAL's biggest creditors to write off ¥350bn in unpaid loans to smooth the path to what would be the sixth-biggest bankruptcy in Japanese history. Seiji Maehara, the transport minister, told reporters: "I met with the heads of the three megabanks this morning and explained to them about a public-led restructuring and asked for their support. I got mostly positive responses." JAL shares fell by their daily limit of ¥30 today, having lost 45% on Tuesday. The airline, reeling from one of the most ignominious weeks in its 59-year-history, has lost $1.8bn (£1.1bn) in market value in just two days. Yasuhiro Matsumoto, a senior credit analyst at Shinsei Securities, said: "It is highly probable that JAL will have its capital wiped out when it files for bankruptcy." The only buyers were those clinging to fading hopes that JAL may be permitted to retain a small percentage of its shares on the Tokyo Stock Exchange, enabling them to make a quick profit. Pension problems While reports said the ETIC was considering that option, officials are said to favour delisting as a way of holding shareholders accountable for the firm's miserable performance. JAL, already weighed down by debts totalling $16m, has been hit hard by falling passenger numbers, inefficiency and an unwieldy pension scheme. It is expecting operating losses of ¥265bn for the year to the end of March, having amassed losses of ¥51bn last year. The firm has secured the two-thirds support it needs from employees and retirees to impose swingeing pension cuts to reduce an estimated pension shortfall of ¥331bn. Failure to gain approval could have seen the pension fund dissolved in bankruptcy court. The new-look JAL is expected to shed almost 16,000 jobs – about 30% of its workforce – and drastically reduce its routes in an attempt to return to profitability. The Kyodo news agency said the restructuring regime could include the launch of a budget airline that would operate only economy-class seats on domestic routes and charge passengers for drinks. The turnaround will be spearheaded by a new chief executive; Kazuo Inamori, the 77-year-old founder of the electronics component maker Kyocera, will take over from Haruka Nishimatsu. While investors dumped shares that could soon be worth nothing, US airlines continued to vie for a stake in JAL's network of domestic and Asian routes, despite reports that ETIC is ruling out investments from foreign airlines because they could complicate bankruptcy proceedings. American Airlines, British Airways, Qantas and Cathay Pacific have joined forces with a $1.4bn offer of new investment, plus a guaranteed $2bn in revenue for the next three years, to keep JAL in their Oneworld alliance. BA's part of the offer includes more co-operation on flights between Japan and Europe, and help with establishing new JAL services between Heathrow and Haneda airport, near Tokyo, which is scheduled to open a new runway and international terminal this year. Delta, the world's biggest airline, is attempting to lure JAL to its Sky Team alliance with a rival offer of $1bn, including $500m in cash.