Japan Airlines Files for Bankruptcy
Asia’s top airline has filed for court-led restructuring with the Tokyo District Court, the Wall Street Journal reports.
In light of this bankruptcy filing, Japan Airlines will seek to turn its unprofitable operation around with an injection of capital from a turnaround agency, the Enterprise Turnaround Initiative Corp. of Japan.
As a part of the restructuring, Japan Airlines will cut costs by reducing their employees by almost 16,000. This figure represents almost a third of their employees, which total about 47,000. Japan Airlines will also request a debt waiver of around 730 billion yen, or about $8 billion.
Enterprise Turnaround Initiative Corp. is a government-supported investment firm. It will inject 300 billion yen into the airline, or around $3.3 billion.
A number of factors have led Japan Airlines to bankruptcy. From the difficult economic situation and its reluctance to drop routes that were not making money, to the swine flu epidemic that led to a drop in travelers and widespread paranoia about travel, Japan Airlines has been losing money. The company was in negotiations with the airline’s banks and the government preceding the bankruptcy.
The quarterly loss that Japan Airlines posted recently was its worst ever. In mid-2009, the airline posted a quarterly loss of 99 billion yen. This represented the worsening of a money-losing trend that started in early 2009.
Japan Airlines is likely to take advantage of Japan’s Corporate Rehabilitation Act. This act usually requires that a company in trouble replaces its management before a set of court-appointed officials begin to steer it back to financial stability. The wide-reaching scope of the company and its massive scale make it hard to predict how long this bankruptcy procedure and restructuring will take.
According to the Wall Street Journal, Japan’s bankruptcy protection law has undergone several revisions to date, aimed at making it easier to use and bringing it closer into line with Chapter 11.
Bankruptcy proceedings that used to take more than a decade have been shortened to take several years. About half of the bankruptcy protection cases in Japan have recovered in the last five years.
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