Delta and American are Left on Runway with JAL on Course for Bankruptcy

admin — Sun, 17 Jan 2010 15:01:38 +0000

A billion-dollar battle between American and Delta to secure a capital alliance with Japan Airlines has fizzled out as Asia’s biggest carrier is on a “countdown to bankruptcy”.
Government insiders in Tokyo said that it had become clear within the past few days that restructuring JAL for survival would probably happen with the airline under administration. Until that happens, and new management is in place, rival carriers will not be invited to take large stakes in JAL.
Officials describe a scramble to maintain business as usual at JAL as creditors and the Government discusses the troubled company’s future. Bankruptcy contingency plans are understood to stretch to co-opting the Japanese diplomatic corps to man the phones at understaffed JAL offices worldwide. Embassies may also be used to soothe local suppliers that have payment concerns.
JAL’s future is being settled amid a maelstrom of competing interest group. A state-backed turnaround group is investigating how the restructuring should be handled and is debating how much funding should come from the state purse. Some ruling-party MPs have said that they favor liquidation. A trio of private sector creditors is keen to avoid that outcome.
It emerged that the Enterprise Turnaround Initiative Corporation had tapped Kazuo Inamori, the founder of the Kyocera electronics group, as a possible transition president. Despite his advanced years, Mr. Inamori is seen as the sort of no-nonsense decision-maker required to shake JAL out of its malaise. He is also known to be close to the ruling Democratic Party of Japan.
Government insiders said that JAL, which is projected to face a capital deficiency of Y88 billion by March, was no longer inviting injections of capital from either of the competing American carriers as any resulting equity stakes would complicate the increasingly likely liquidation of JAL.
The US rivals will, however, be able to continue negotiations over partnerships. Both carriers are expected to shift their pitches from financial enticements to the “strategic logic” of their respective offers.
Since last autumn, Delta Air Lines and American Airlines have been courting JAL, with both companies making similar-sized offers of capital and debt relief. American, which is partnered with JAL through the Oneworld group, is eager to keep JAL in the alliance and exploit its extensive Asian route network. Delta is keen to lure JAL to the Sky Team alliance.
JAL insiders said that negotiations had been suspended until ETIC was satisfied that JAL was in a substantially less precarious financial position. The sudden freeze-out for Delta and American came as both groups were preparing to sweeten their offers.
ETIC’s plans involve pouring about Y300 billion of new capital into JAL. That, however, is dependent upon JAL’s creditors agreeing to a joint debt waiver worth Y350 billion and the company filing for bankruptcy.
ETIC has been at pains to ensure that, if JAL does go down the bankruptcy route, the effect on its operations will not be too disruptive. It has said it will make sure that fuel and spare parts suppliers are paid in full in the event of liquidation. The turnaround group has raised concerns that many of JAL’s suppliers around the world may start to demand cash payments for the supply of goods and services if JAL declares bankruptcy.

State Forex Station » American airline

Delta and American are Left on Runway with JAL on Course for Bankruptcy