The FINANCIAL — Shares of Japan Airlines jumped 31 percent Monday as Japanese government said Sunday the state-owned Development Bank of Japan will double its credit line for Japan Airlines to 200 billion yen to prevent the carrier from running out of cash.
Both pieces of news appeared to lower the prospect that JAL – Asia’s largest carrier, but a deeply loss-making company – will fall into bankruptcy, Times reports.
The airline climbed 31 percent, the most in more than seven years, to close at 88 yen on the Tokyo Stock Exchange. Development Bank granted its fourth emergency loan to the Tokyo- based carrier since 2001 in November, according to Business Week. JAL has used more than half of that 100 billion yen facility, Transport Minister Seiji Maehara said last week, and the extra money may help the carrier survive as it seeks new investors and support from a state-affiliated fund for a turnaround. The airline tumbled 30 percent over the previous two trading days on speculation it would file for bankruptcy.
“The additional loan eases the immediate pressure on JAL, but it’s just a stopgap measure,” said Tatsuya Mizuno, director of Mizuno Credit Advisory in Tokyo, as the same source reports. “If customers avoid JAL flights, finances will get even tougher, so it’s questionable how long this loan will tide them over.”
The extra funding is aimed at keeping the carrier going until the state-backed fund, the Enterprise Turnaround Initiative Corp. of Japan, or E.T.I.C., decides later this month whether or not to support JAL with taxpayer money, according to The New York Times. A bankruptcy would complicate JAL’s talks with Delta Air Lines and American Airlines, both of which are pursuing JAL, the largest Asian carrier by revenue, with promises of financial aid and revenue growth through partnerships on overseas routes.
“The move appears to have erased worries about JAL’s immediate credit concerns,” said Takashi Kishi, senior analyst at Mizuho Investors Securities, the same source reports. “But JAL’s stock has already become a money game. I think it will rise and fall sharply in response to government moves and media reports until E.T.I.C. makes a decision.”
The two US carriers, Delta Air Lines and American Airlines, backed with private equity funding, have each proposed financing deals in excess of $1 billion, according to Times. The stakes are high: if JAL signs a deal with American, it will remain in the Oneworld Alliance, providing the group with critical coverage of Asia. If Delta wins the day, JAL would become part of the Skyteam alliance, greatly enhancing Delta’s already strong position in Japan and leaving American and partners like British Airways facing serious coverage gaps in the region.
JAL denied evening newspaper reports suggesting both that it was close to selecting Delta as its partner and that American had effectively withdrawn from the race, the same source reports. A senior spokesman for American said that negotiations were still continuing with the Japanese carrier and that talks had continued on Monday on a positive note. Nevertheless, Haruka Nishimatsu, JAL’s chief executive, hinted in a weekend interview that he may favour the deal with Delta. The airline has more Asian partners in its alliance and this is the geographic region where JAL envisages growth in the coming years.
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