JAPAN Business

ANA gains JAL’s market share on cargo

WITH Japan Airlines (JAL) distancing itself from air cargo, All Nippon Airways (ANA) is moving in to exploit the vacuum.

Since JAL filed for bankruptcy in January it has announced that it will solely use belly capacity instead of running freighters from the end of October. Its international cargo volume fell 7.2 per cent to 46,006 tons in June while ANA’s rose for the 10th successive month, up 36.6 per cent to 38,645 tons.

Domestically, JAL’s cargo volume rose two per cent in June to 36,313 tons, but ANA overtook it following the seventh straight month growth, taking it up 4.6 per cent in June to 37,300 tons.

ANA said: “With reduced freight capacity due to downsizing of aircraft and the effects of sluggish demand for perishable cargo and home delivery parcel services, domestic cargo volumes slightly fell below those of the previous year. However international cargo volumes rose with growth in Chinese domestic market demand driven by the implementation of economic stimulus measures, as well as a rise in shipment demand of plasma display and semiconductor-related materials in Taipei and Seoul. Transport saw positive growth, primarily on Asian routes, and volumes in the period increased significantly versus last year.”

JAL’s reorganisation has seen it merge four of its subsidiary sales companies – JAL Sales, JAL Sales Hokkaido, JAL Sales West Japan and JAL Sales Kyushu – effective 1 October. The merged entity will be named JAL Sales.

In addition, JAL has sold sell 90 per cent of its stake in JAL Sky Kansai, while JAL Ground Service in turn sold 90 per cent of its stake in both JAL Ground Service Kansai and JAL Ground Support Kansai to Konoike Transport.

Japan Airlines set for bankruptcy today

Japan Airlines Corp is expected to file for one of the country’s largest ever bankruptcies today, marking the failure of the former state-owned carrier that once symbolised Japan Inc’s international aspirations.

JAL, Asia’s largest airline by revenues, will remain in the skies under a state-backed restructuring plan as it tries to free itself from about $US16 billion ($17.3 billion) in debt in exchange for slashing its workforce by a third and shedding unprofitable routes, sources have said.

JAL, which has been bailed out by the Japanese government three times in the past 10 years, must now look to reinvent itself through painful staff and operation cuts as well as tough decisions about foreign capital and alliances.

“I am not worried about the future of the carrier as I believe the government will strongly support it,” said Yasuhiro Matsumoto, credit analyst at Shinsei Securities.

“But whether it will be able to grow as a business is unclear. I can’t see how JAL is going to build its network domestically and internationally,” he added.

The move could make rival All Nippon Airways Co Japan’s new flagship carrier, some analysts said.

Shares of JAL were trading at 4 yen, a decline of 20 per cent.

JAL had earlier been seen by many Japanese as a symbol of the country’s postwar boom as it transformed a handful of leased planes in 1951 into a nearly 50,000 staff airline with a fleet of almost 280 aircraft.

Echoing similar bankruptcies by overseas airlines such as Delta Air Lines and United Airlines, JAL plans to cut some 15,000 jobs and erase about two dozen unprofitable routes, sources said.

JAL is expected to file for protection from creditors using a procedure that will allow it to continue operations and seek to rebuild itself, similar to Chapter 11 in the United States.

In return, the state-backed Enterprise Turnaround Initiative Corp of Japan (ETIC) will support the carrier with about 300 billion yen ($3.6 billion) in capital and its creditors will be asked to forgive about 350 billion yen of their loans, sources said.

Units including Japan Airlines International, which handles domestic and overseas flights and JAL Capital, which raises operational funds, will also file for bankruptcy, one source said.

But that will only be the beginning for an airline with depleted capital, facing headwinds such as rising fuel costs and shrinking passenger numbers, on top of hefty restructuring costs.

JAL needs to do what it has long put off: make a list of its operations in order of priority and start cutting the ones 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.

JAL will also need to come to a decision about competing offers for aid from Oneworld alliance partner American Airlines and rival Delta, which is trying to woo JAL into the competing SkyTeam group.

The carrier has spent two decades trying to recover public trust following a 1985 crash that became the world’s worst single aircraft disaster in history, claiming 520 lives.

JAL, headed for its fourth net loss in five years, last week drew down on the 145 billion yen in emergency funding left from a 200 billion yen credit line supplied by the state-owned Development Bank of Japan.

JAL was saddled with 1.5 trillion yen in total liabilities as of the end of September. That level of debt would make it the sixth-biggest bankruptcy ever in Japan, ranking just below the 2001 collapse of retailer Mycal.

The state-backed ETIC can draw on government-backed funding to support ailing Japanese companies. The fund has said it would guarantee payment for fuel and other commercial transactions to ensure JAL can maintain its operations.

Kazuo Inamori, the 77-year-old founder of electronics maker Kyocera Corp, was tapped last week to become JAL’s new chief executive officer to oversee its restructuring.

JAL’s restructuring plan also calls for increasing the fuel efficiency of its fleet, procuring 33 small jets and 17 regional jets while retiring 53 bigger ones.

“I think a revival of JAL will be good for manufacturers such as Mitsubishi Heavy industries which is developing new regional jets,” said Shinsei’s Matsumoto.

Reuters

Qantas partners up rescue bid for JAL

American Airlines has upped the ante in a bidding war with rival Delta Air Lines for a stake in Japan Airlines, which is teetering on the verge of bankruptcy.

American Airlines and its partners lifted their proposed investment in Asia’s biggest carrier to $US1.4 billion ($1.5 billion), from a previous offer of $US1.1 billion ($1.2 billion), the US carrier announced at a Tokyo news conference today.

In addition, they will guarantee $US2 billion in revenue over the next three years if JAL stays in the oneworld alliance.

American has teamed up with its Oneworld alliance partners – among them Qantas – and private equity company TPG to woo JAL, which has also been offered a $US1 billion financial package from Delta, the world’s largest carrier.

American and Delta are competing to tie-up with JAL and increase their share of the lucrative Asian market.

‘‘This proposal demonstrates Oneworld’s extraordinary commitment to JAL,’’ American Airlines executive vice president Thomas Horton said in the statement. ‘‘It brings stability and certainty to Japan Airlines at a time when it is most needed, as it faces turbulent times over the coming weeks and months.’’

Delta, which belongs to the SkyTeam airline alliance, is seeking to lure JAL away from the Oneworld grouping.

JAL delisting?

JAL shares dived almost 45 per cent in early trade on Tuesday, battered by deepening fears that investors will see their stakes wiped out under a widely expected bankruptcy filing.

Media reports said that the debt-ridden airline is likely to be delisted from the Tokyo Stock Exchange.

JAL, which lost about $US1.5 billion in the six months to September, is seeking its fourth government bailout since 2001 to enable it to keep flying in the face of mounting debts.

Hatoyama, who ended half a century of near-continuous rule by the LDP last year, declined to comment on the possibility of JAL being delisted when speaking to reporters today in Tokyo. The government has previously said that JAL, unprofitable in three of the last four years, will continue flying. JAL spokeswoman Sze Hunn Yap declined to comment.

All Nippon Airways, Japan’s No.2 carrier, rose as much as 7.4 per cent in Tokyo trading, the most since July. Skymark Airlines Inc., the nation’s largest discount carrier, jumped as much as 21 per cent.

Delta Air Lines and AMR Corp.’s American Airlines, which are competing to invest in Tokyo-based JAL, both said last week that a bankruptcy wouldn’t deter them as they want access to the airline’s networks in Japan and China. AMR Corp.’s American will meet the press today at 2 p.m. in Tokyo to discuss its plans, according to a statement.

Travel slump

JAL, which has at least 1.5 trillion yen ($18 billion) of liabilities, has struggled because of competition from All Nippon, Skymark and bullet trains. Worldwide international air travel also likely fell about 4.1 per cent last year, according to the International Air Transport Association, as the global recession sapped demand.

”Japanese airlines haven’t been doing well for a long time,” Tan Teng Boo, who oversees $US300 million as managing director at iCapital Global Fund, said from Singapore. ”They need some form of catalyst.” Tan said he has never owned JAL shares.

The global recession also caused General Motors Corp. and Chrysler to seek bankruptcy as consumers pared spending on job concerns. Mesa Air Group, which operates flights for major US carriers including Delta and UAL Corp.’s United Airlines, filed for Chapter 11 bankruptcy in the US earlier this month.

Restructuring plan

Under the proposed restructuring plan for JAL, Enterprise Turnaround Initiative of Corp. of Japan, a state-affiliated fund, will provide 300 billion yen of capital to JAL and a 400 billion yen credit line, the Yomiuri newspaper said last week. Creditors will be asked for about 350 billion yen in debt waivers and debt-for-equity swaps, the report said. An Enterprise Turnaround spokesman declined to comment.

The carrier plans to shed 13,000 jobs during a three-year restructuring by offering early retirements and shedding units, the Nikkei said today, without citing anyone. Haruka Nishimatsu, 62, chief executive of JAL since 2006, has already said he will step down.

JAL’s four biggest lenders, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group and state-owned Development Bank of Japan were owed 429 billion yen at the end of March, according to the carrier.

JAL previously won emergency loans from Development Bank under LDP administrations following the Sept. 11 terrorist attacks in 2001, the 2003 SARS outbreak and again last year as Japan suffered its worst postwar recession.

GM, the largest U.S. automaker, filed for Chapter 11 bankruptcy in June with $US172.8 billion of liabilities. A US government-backed restructuring allowed a smaller automaker to re-emerge the following month with about $11 billion in US debt and a focus on fewer brands.

Bloomberg News, with Reuters

JAL to cut every third job as bankruptcy nears

Troubled Japan Airlines is set to cut about 15,600 jobs, a third of its work force, and reject billion-dollar cash offers from Delta and American Airlines, as it files for bankruptcy and embarks on a government-led turnaround, reports said on Monday.

Under a rehabilitation plan now being hammered out by a state-backed corporate turnaround body, JAL would make the job cuts during the three fiscal years through March 2013, Kyodo News reported. The plan would include a fresh investment of 300 billion yen($3.55 billion) by the body and wipe much of its soaring debts under bankruptcy protection.

JAL’s shares, which have plunged in recent weeks, are to be delisted, the Asahi newspaper reported.

Officials at JAL, the transport ministry and the turnaround body could not be reached for comment on Monday, a national holiday in Japan. The stock market was also closed.

The state-backed Enterprise Turnaround Initiative Corp. of Japan will decline cash offers from Delta and American Airlines as it fears giving foreign carriers a foreign stake in the company would complicate the restructuring, according to media reports.

Instead, the airline will pursue only greater cooperation with either Delta or American, the business daily Nikkei said Sunday. The turnaround body will pick one of the US carriers as JAL’s partner after February, it said.

Delta and its SkyTeam partners have offered $US1 billion ($1.08 billion) to JAL, while American, which partners with JAL in the oneworld alliance, has countered with a $US1.4 billion ($1.5 billion).

JAL could file for bankruptcy as early as January 19, with company president Haruka Nishimatsu resigning soon after, reports said.

The Nikkei said on Sunday the government and the turnaround body have asked Kazuo Inamori, founder of electronic component maker Kyocera Corp., to head JAL during the restructuring process. Inamori is to reply to the government by the end of the week.

Shares in JAL have tumbled and were off nearly 12 per cent on Friday at 67 yen. Friday’s finish marked a staggering fall from JAL’s closing price of 213 yen at the beginning of 2009.

AP

US, Japan to hold ‘open skies’ talks

The United States and Japan will hold negotiations aimed at liberalizing air traffic, known as “open skies” talks, in Washington next week, an official told AFP Thursday.

The discussions will be held Monday, said Bill Mosley, a Department of Transportation DOT spokesman.

“This is the next round of the talks” that have been held “over the years,” he said, confirming in part a report by the Nikkei business daily.

According to Nikkei, the US and Japan are expected to sign an “open skies” agreement shortly, with the deal possibly initialled in three-day talks due to start Monday in Washington.

Mosley declined to say whether the talks would extend beyond Monday, saying it depended on the circumstances.

He said the State Department leads the US side in the talks that include DOT officials.

In Tokyo Thursday, struggling Japan Airlines was offered a 1.1 billion dollar lifeline from partners led by American Airlines, amid a bidding war with Delta Air Lines for a piece of Asia’s biggest carrier.

American and Delta have both sought a stake in JAL, hoping to expand their Asian operations ahead of the anticipated “open skies” agreement.

AFP