Shares in Japan Airlines fell by 45% to a new all-time low today amid fears that the airline would file for court-protected restructuring within a week, which would render the shares worthless.
The slump came despite American Airlines sweetening its investment offer from $1bn to £1.3bn.
JAL pension holders meanwhile have also agreed to a 30 per cent cut in pay-outs, thereby clearing one of the main hurdles to a restructuring plan. Two thirds of its existing retirees had now agreed to the cut. Earlier this month, 91 per cent of the carrier’s employees agreed to the cut.
The Enterprise Turnaround Initiative Corporation is also finalising a restructuring plan that involves court-backed rehabilitation, including Y300bn ($3.3bn) injection cash injection.
The new government, led by the Democratic party of Japan, has given its strongest hint yet that a court-backed restructuring would happen. Prime Minister Yukio Hatoyama told reporters today that “in general” shareholders did bear some responsibility.
The government could approve a court-led process as soon as Tuesday, according to one report in the Japanese press.
The JAL court protect would also be politically motivated, and draw a distinction between the new government and the previous regime which poured Y270bn between 2001 and 2009 propping up one of the largest loss-makers within aviation.
Despite the revised offer, American along with its rival Delta have been frozen out of negotiations temporarily as they would complication the restructuring process.
American officially increased the amount it was prepared to offer JAL along with its financial partner, TPG, by $300m to $1.4bn.
American also said it would guarantee an additional $300m in revenues for JAL over three years in a bid to keep the lynchpin of its Asian business in its Oneworld alliance.
Thomas W Horton, chief financial officer of American’s parent, AMR Corp, said: “While JAL and the Japanese government might decide to address capital requirements internally - and we certainly would understand and respect that - our offer of capital would be available if this was deemed an appropriate resource to aid in the restructuring of JAL.”
British Airways added that JAL could expect an additional $200m in revenues from an alliance with the UK carrier.