Is JAL’s Rehab Plan Headed Back To Square One?

TOKYO (Nikkei)–With the Ministry of Finance and major lenders adopting a tough love stance with Japan Airlines Corp., the latest business turnaround plan proposed for the financially strapped airline operator will need to be significantly revamped.

In June, the MOF, the Development Bank of Japan and other lenders supplied JAL with 100 billion yen in loans, about half the amount sought by the airline. Because of the tacit understanding at the time that the Transport Ministry would take responsibility for placing JAL on a recovery track, the hurdles placed before the company’s efforts to secure additional assistance have been high.

The task force directly reporting to the transport minister released its latest rehabilitation plan earlier this week, only to be met by opposition from groups with varying vested interests. The proposed measures focus on eliminating JAL’s negative net worth, which is estimated at nearly 250 billion yen. But to do so, the airline would have to improve its finances, beginning with a sharp reduction in its pension liabilities.

But the MOF, which would oversee the financial aid to JAL, and the carrier’s top creditor, the DBJ, believe the plan to be unworkable, thereby limiting the government’s ability to infuse public funds into the airline.

As a result, the available options appear to be narrowing. Some government officials have begun looking into the possibility of providing support to JAL through the Enterprise Turnaround Initiative Corp. of Japan, which is funded by both the government and private-sector financial institutions. If this path leads nowhere, JAL could be forced to consider bankruptcy proceedings.

(The Nikkei Oct. 17 morning edition)

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