Japan agrees to double JAL credit to $2.2 billion

Japan said it agreed yesterday to give a new lifeline to troubled Japan Airlines by doubling a state-funded loan for the carrier to ¥200 billion ($2.2bn or Dh8bn).

The government decision comes after shares in Asia's largest carrier plunged to a record low last week after investors were spooked by reports that bankruptcy was a possible option for the beleaguered airline.

"The government has decided to expand from ¥100bn to ¥200bn the line of credit from the Development Bank of Japan to Japan Airlines Corp," an official statement said.

In November, the state-run Development Bank had set a credit line of ¥100bn for Japan Airlines and has already paid out just over half of the total.

The extra funding was agreed at a meeting of cabinet ministers including Transport Minister Seiji Maehara and Vice-Prime Minister Naoto Kan.

JAL, battered by the global recession and swine flu pandemic, is scrambling to slash costs and is seeking its fourth government bailout since 2001 to keep flying in the face of mounting losses.

Local media have reported that the state-backed Enterprise Turnaround Initiative Corp (ETIC), which is overseeing JAL's restructuring, is considering the possibility of the carrier filing for protection from creditors.

ETIC is expected to decide on a financial package for the carrier in mid-January. But airline President Haruka Nishimatsu said in an interview with the Asahi Shimbun newspaper published on Sunday that he was opposed to any bankruptcy filing and also had no plans to halt international flights.

"Legal liquidation gives an image that will affect us and reduce the number of our clients," he said.

The airline, which lost about $1.5 billion in the six months to September, has said it plans thousands of job cuts and a drastic reduction in routes as part of its efforts to return to profitability.

On Thursday, the Mainichi Shimbun newspaper reported that the government was discussing a plan which would see rival All Nippon Airways (ANA) take over JAL's international flights.

But Nishimatsu dismissed such a plan as "impossible".

"Demand for air traffic, particularly in Asia, is rapidly expanding. It provides a tremendous business opportunity," he told Asahi.

JAL has been offered financial assistance by both American Airlines and Delta Air Lines, which are competing to take a minority stake in the Japanese carrier, eyeing its coveted Asian landing slots.

Nishimatsu said he was in favour of the airline switching to Delta's global alliance SkyTeam from the OneWorld group of American Airlines. "Asia will have 'open skies' in the future... SkyTeam has many Asian members," he said.

The global economic downturn has dealt a heavy blow to JAL's efforts to recover from a long period of financial turbulence stretching back to its privatisation more than two decades ago.

Nishimatsu said he is against a bankruptcy proceeding under a state restructuring plan and has no plans to completely withdraw the carrier from overseas flights, the Asahi Shimbun reported.

JAL, hit by a global downturn in travel and a bloated cost base, has been seeking a bailout from the state-backed Enterprise Turnaround Initiative Corp of Japan (ETIC), which is expected to make a decision on whether to support the airline this month.

The ETIC, a state-backed fund established to inject capital into and buy the debt of struggling but viable firms, has told JAL's main creditors it favours a bankruptcy proceeding as part of its rescue package.

But Nishimatsu is against the plan, suggesting tough negotiations ahead between the airline and the ETIC, the Asahi reported.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.