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03 December 2023

JAL lenders expected to accept bankruptcy plan

JAL lenders expected to accept bankruptcy plan. (AP)

By Reuters

The main lenders to Japan Airlines plan to accept a restructuring package that would require the carrier to file for bankruptcy, increasing the likelihood of a state bailout this month.

A state-backed turnaround fund plans to establish a credit line of more than ¥600 billion ($6.5bn, Dh23.8bn) along with a state-owned bank to ensure JAL can keep flying once a bankruptcy is announced, a source with the knowledge of the matter said.

Reflecting growing concerns over the potential fallout from a bankruptcy, the Yomiuri newspaper said the government plans to tap diplomatic channels to reassure the 35 or so countries to which JAL flies that it would support the carrier.

JAL, weighed down by $16bn in debt and mired in losses, applied in late October to the Enterprise Turnaround Initiative Corp of Japan, a body of restructuring specialists that can tap state-backed funding to bail out ailing companies. The ETIC has proposed putting about ¥300bn in fresh capital into JAL, provided it file for bankruptcy and creditors agree to waive around ¥350bn in debts, sources said earlier this week.

JAL's main creditors, which include Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group, countered with a proposal that would avoid bankruptcy, eager to limit their own losses.

But with the ETIC holding firm that bankruptcy is the most transparent way to deal with JAL's problems, the banks will almost certainly agree to the ETIC's plan, three people with knowledge of talks between the banks, government and ETIC said.

"JAL needs ¥300bn and the ETIC is the only one that can provide it. If the ETIC is pushing for a court-led restructuring, then we have to accept it. Otherwise JAL will collapse," said one of the sources, adding that banks had been given a deadline of January 15 to agree to the plan. A bankruptcy could complicate talks with Delta Air Lines and American Airlines, which are courting JAL with rival offers of financial aid, eyeing a stronger foothold in Japan and close ties on overseas routes.

Both American, which partners with JAL in the Oneworld alliance, and Delta, which is trying to get it to defect to the SkyTeam group, have said they would invest in JAL whether it goes through bankruptcy proceedings or not.

The ETIC is eyeing some time between January 19 and 22 for JAL to file for bankruptcy and for the ETIC to officially announce its plan to support the carrier, sources have said.

The ETIC is keen to have its restructuring plan in place at that time so as to minimise potential disruptions to air travel during the college entrance exam season, which runs from the second half of January through March.

The timing also coincides with the start of the parliament session.


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