JAL investors pick bankruptcy over bailout for airline

Kiyoshi Watanabe bought Japan Airlines shares last year at about 100 ($1.50) and lost over 90 per cent of his investment on speculation the former flag carrier will file for bankruptcy.

Yet he supports the Government's decision to forgo a bailout.

"With the blood transfusions, JAL would just be surviving as a zombie," said Watanabe, 44-year-old chairman of a non-profit organisation in Tokyo.

"This is a good thing. JAL must be rehabilitated."

National pride in JAL, commonly referred to as the "rising sun under the umbrella of the Government", has plunged since the 1970s, when it ranked first five times among companies that college graduates aspired to serve, according to Tokyo placement company Recruit.

The Tokyo-based carrier, which reported a first-half loss of 131 billion, was supported by four state bailouts in nine years.

"When I was a student in the United States, I had a nice feeling when Isaw a JAL plane at the airport,"said Yukio Noguchi, a finance professor at Waseda University in Tokyo.

"It was our pride as Japanese."

JAL finished 14th in Recruit's survey last year, while rival All Nippon Airways was third.

Enterprise Turnaround Initiative of Japan, the state-affiliated agency leading the restructuring of the carrier, will make a final decision on its plan today, Transport Minister Seiji Maehara told reporters last week.

JAL began in 1951 as a private carrier called Japanese Air Lines. It became state-owned in 1953, was renamed Japan Airlines and started international services.

The Government sold its stake in 1987 and the airline was privatised.

JAL borrowed an undisclosed amount from the Government in October 2001 to cope with the travel slump after the September 11 attacks.

In 2004, JAL received 90 billion in emergency loans from the Development Bank of Japan as the Sars virus and Iraq war cut demand for travel.

It requested more Government assistance in April 2009, applying for a 200 billion loan from the Development Bank of Japan during the global recession. The following month JAL announced 1200 job cuts and said it would cut costs by 50 billion this fiscal year.

Prime Minister Yukio Hatoyama promised during his election campaign last year to alter the relationship between Government, the bureaucracy and big business - dubbed Japan's "iron triangle".

"The bankruptcy will change the image of governance in Japan and the relationship between Government and companies," said Martin Schulz, senior economist at the Fujitsu Research Institute in Tokyo. "The public clearly wants some of the old ties to be cut."

The Government has said the carrier will continue to operate. More than 100 airlines have gone through bankruptcy since 1978, according to the Washington-based trade group Air Transport Association. The list includes Delta Air Lines, United Airlines, Northwest Airlines, US Airways Group and Continental Airlines.

Swissair and affiliate Sabena failed in 2001, and New Zealand nationalised Air New Zealand that year to prevent its collapse.

Phoenix-based Mesa Air Group filed for bankruptcy this year.

"I imagine this is a very difficult pill to swallow for JAL's employees and pensioners," said Kenta Kimura, 31, a JAL investor working in project development at Tokyo's Japan International Co-operation Centre. "In the long run, I think we will look back and say it was right to fix up the company."

JAL's long decline negates the shock value of bankruptcy, investors say.

"If it were five years ago, it would have been difficult to let JAL go bankrupt," said Mitsushige Akino, who oversees about US$450 million in ($611 million) assets at Ichiyoshi Investment Management in Tokyo.

"There's no such sentiment among Japanese people to want to save JAL, which only has the glory of thepast."

- BLOOMBERG