x Abu Dhabi, UAEThursday 27 July 2017

Japan Airlines files for $25bn bankruptcy

JAL files for bankruptcy owing more than $25 billion and vows to slash 15,700 jobs and unprofitable routes.

TOKYO // Japan Airlines filed for bankruptcy protection today owing more than US$25 billion (Dh 91bn) and vowed to slash 15,700 jobs and unprofitable routes as part of a plan to survive an industry beset by volatile fuel costs and fickle flyers. JAL, Asia's largest airline by revenues, will remain in the skies thanks to almost 1 trillion yen (Dh41bn) in support from a state-backed fund, but must go through a sweeping restructuring under a new board and management.

Shareholders will be wiped out and lenders will forgive a larger-than-expected 730bn yen in debt as part of the deal with the fund, the Enterprise Turnaround Initiative Corp of Japan (ETIC). Bankruptcy will only be the beginning for an airline with depleted capital, facing headwinds such as rising fuel prices and shrinking passenger numbers, on top of hefty restructuring costs. The airline, which has been bailed out by the Japanese government three times in the past 10 years, will replace many of its older, larger and less fuel-efficient planes. It also faces tough decisions about foreign capital and alliances.

"I have a little bit of a sense that we're now finding out that things were a bit worse than expected," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "What this has shown is that the nation won't just take total care of a company, that they've now said they'll let badly-run companies fail." JAL's bankruptcy listing 2.3 trillion yen in total debts as of Sept 30 ranks as Japan's fourth-largest ever.

Shares of JAL, which have fallen more than 90 per cent since the start of the month, closed flat at 5 yen after trading down 2 yen to 3 yen. They will be delisted on Feb 20, according to the stock exchange. With a market value of about $150m, JAL is now smaller than minor carriers Croatia Airlines and Jazeera Airways and is worth less than a Boeing 747.

JAL needs to do what it has long put off: Focus on its main business and cut operations it doesn't need, said Andrew Miller, chief executive officer of CAPA Consulting. "I would have a fire sale ? get rid of the family silver, sell everything that is non-core and focus in on the core and make that work efficiently," he said. * Reuters