View from Japan: JAL secures Y100bn emergency funding

Japan Airlines on Monday secured Y100bn ($1bn) in emergency funding after the Japanese government agreed to guarantee new loans to the deeply indebted group.

Asia’s biggest carrier by revenues, which has seen the results of a four-year restructuring undone by the global economic downturn, had been seeking up to Y200bn from existing creditors including the state-backed Development Bank of Japan.

Under a deal agreed by cabinet ministers, JAL is to receive half of the requested funds as early as next week. The largest portion, likely to total at least Y60bn, is to be provided by the DBJ and will carry a state guarantee covering up to 80 per cent of any losses, according to people close to the matter.

The remainder could be made available later – subject to a review of JAL’s restructuring efforts, these people said.

The airline has sold non-core assets, cut jobs and eliminated unprofitable routes, but analysts and creditors say more radical measures are needed.

JAL has struggled to finance one of the industry’s heaviest debt loads amid a deep downturn in air travel. The former national carrier suffered a Y63bn net loss in the business year to March and expects to lose an equal amount this year.

Tokyo has extended loan guarantees to smaller companies affected by the recession, but the JAL deal marks the first time during the slump that a major group will receive taxpayer backing for its debt. Loan guarantees free up collateral that can be used to secure funds from private sector lenders.

Kaoru Yosano, finance minister, said guaranteeing the DBJ’s portion of the JAL financing would allow the carrier’s main private sector banks – Mizuho Financial, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group – to contribute a larger share of the targeted financing.

JAL, the DBJ and the private sector banks were still negotiating details on Monday.

JAL has said it needs cash to roll over debt and to overhaul its ageing fleet. Its international passenger revenue fell by Y51bn in the year to March, or 6 per cent, while domestic revenues fell even faster.

Mr Yosano said the government would tighten oversight of JAL’s restructuring in exchange for the loan guarantee and signalled political support for further personnel and service cuts.

Last week, JAL announced plans to cut seven more domestic routes and one international route this year.

Globally, airlines could lose as much as $9bn this year, according to the International Air Transport Association.

By Jonathan Soble in Tokyo