Delta Airlines and American Airlines have been frozen out of the battle for a stake in Japan Airlines, after the government dropped its strongest hint yet that the national carrier will probably sink into administration, which could be within just days.
According to reports from Japanese media, government insiders in Tokyo have given their strongest hint yet that a restructuring of JAL would 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, despite both Delta and AA being poised to sweeten their offers.
The state-owned Development Bank of Japan (DBJ) is believed to have already agreed to the bankruptcy
Whilst JAL’s bankers – Mitsubishi UFJ, Sumitomo Mitsui and Mizuho – could be prepared to go along with a proposed court-led reconstruction, despite the fact that they may not be repaid a significant amount of the money they are owed.
JAL’s future is being settled amid a number of competing interest groups. A state-backed turnaround group is investigating how the restructuring should be handled and is debating how much funding should come from government funding. Some ruling party MPs have said that they favour liquidation. Meanwhile private sector creditors are keen to avoid liquidation.
The Enterprise Turnaround Initiative Corporation (ETIC) is backing Kazuo Inamori, 77, the founder of the Kyocera electronics group, as a possible transition president. Inamori is seen as a tough decision-maker required to strip out the JAL waste. He is also known to be close to the ruling Democratic Party of Japan.
Government insiders said yesterday that JAL, which is projected to face a capital shortfall of Y800 billion (£5.4 billion) by March, was no longer inviting injections of capital from either Delta or AA.
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.
American, which is partnered with JAL through the Oneworld group, is eager to keep JAL in the alliance and tap into its extensive Asian route network. Delta is keen to lure JAL to the Sky Team alliance.
ETIC’s plans involve injecting about Y300 billion of new capital into JAL, though this will depend on creditors agreeing to a joint debt waiver worth Y350 billion and the company filing for bankruptcy.
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.