Govt to let JAL go bankrupt

Japan Airlines is preparing for what may be the country's sixth-largest bankruptcy as Prime Minister Yukio Hatoyama breaks with predecessors who bailed out the carrier three times in the past nine years.

A final decision on the future of Asia's largest carrier, founded in 1951, may be made this week, and a bankruptcy filing will follow next week, say three insiders.

The finance ministry and the Tokyo-based carrier's biggest lenders all favour a court restructuring, insiders say.

Hatoyama ended half a century of near-continuous rule by the Liberal Democratic Party in September on a pledge to cut wasteful government spending and he is set to push through a bankruptcy rather than grant unrestricted loans to a carrier with at least 1.5 trillion ($21 billion) of liabilities.

The yield on JAL's 2013 notes tripled last week and shares slumped to a record low in Tokyo trading on speculation the carrier would seek court protection.

"It's impossible that JAL would have gone bankrupt in the LDP era," said Satoshi Yuzaki, an analyst at Takagi Securities in Tokyo. "The quick decision-making by Hatoyama's Government is commendable."

The carrier, headed by chief executive officer Haruka Nishimatsu, 62, previously won emergency loans from a state-owned bank under LDP governments after the September 11 terrorist attacks in 2001, the 2003 Sars outbreak and again last year as Japan suffered its worst postwar recession.

Under the proposed restructuring plan, Enterprise Turnaround Initiative of Corp of Japan, a state-affiliated fund, will provide 300 billion of capital to JAL and a 400 billion credit line, the Yomiuri newspaper said.

Creditors will be asked for about 350 billion in debt waivers and debt-for-equity swaps.

The carrier may also cut 10,000 jobs over three years, the Nikkei said last week. Nishimatsu has already said he will step down.

"Bankruptcy is the best way to ensure a speedy revival for JAL," said Osuke Itazaki, an airlines analyst at Credit Suisse Group AG in Tokyo.

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 at the end of last March.

Spokespeople for Mizuho, Mitsubishi UFJ and JAL declined to comment on the possibility of bankruptcy.

A spokeswoman for Sumitomo Mitsui wasn't immediately available and calls to the ministry of finance, which oversees Development Bank, went unanswered.

Delta Air Line and AMR's American Airlines, the world's two largest carriers, which are competing to invest in JAL, both said last week that a bankruptcy filing would not deter their plans. The carriers want a stake to access JAL's networks in China and Japan.

JAL slumped 26 per cent in the past three trading days to 67, after dropping 68 per cent last year, the worst performance in the Nikkei 225 Stock Average.

- BLOOMBERG