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Public Funds Mulled to Keep Japan Airlines Corp. Afloat

May Sell Nikko Hotels International and Hotel JAL City Chains

By Kazuaki Nagata, Japan Times, TokyoMcClatchy-Tribune Regional News

Oct. 21, 2009--The government may need to inject public funds into Japan Airlines Corp. to keep the ailing carrier aloft, transport minister Seiji Maehara and Finance Minister Hirohisa Fujii indicated Tuesday.

The announcement comes as JAL faces a much bigger than expected group operating loss of around ¥200 billion in fiscal 2009, compared with an earlier forecast of ¥59 billion, with management considering selling its hotel business in an urgent move to improve earnings.

The two key members of Prime Minister Yukio Hatoyama's administration met with members of the JAL reconstruction task force Tuesday morning for a briefing on JAL's rehabilitation plans. The task force, formed by the transport ministry, has already informed JAL's creditors of the higher forecast loss, sources said Monday.

Both later admitted that the plans were drafted under the premise that the government will come to JAL's rescue.

The task force is expected to outline the rescue plan by the end of the month and issue a final version by the end of November. But Fujii said JAL's revival plan will be decided "within the next several days."

Apparently at the center of Tuesday's discussions was whether it would be right to use public funds to support JAL, which is projected to suffer huge losses for a second straight year.

The meeting was the first ministerial consultation about Japan's top airline since the Democratic Party of Japan took power a month ago.

Maehara has been emphasizing the importance of JAL turning itself around. But during a news conference Tuesday he hinted public funds may be necessary.

"When the previous government was in charge, ¥100 billion was loaned to JAL," Maehara said, noting the funds came from major banks and the Development Bank of Japan.

"That loan comes with government compensation. Taking this under consideration, public support has already been provided, and everything was not purely done with private-sector funds. I think we can think of that point in a broader sense," he said.

Maehara meanwhile did not rule out a possible court-managed reconstruction program, saying coming discussions will address this issue.

The swelling loss expected for the year through March 31 is due to increases in spending needed for downsizing JAL's corporate structure and workforce, in addition to sluggish revenues from its operations, the sources said.

As part of efforts to turn its business around, JAL is considering selling JAL Hotels Co., a subsidiary that runs about 60 hotels at home and abroad, the sources said.

The subsidiary runs two chains, Nikko Hotels International and Hotel JAL City. It operates 17 hotels overseas, including in Beijing, Dusseldorf, Hanoi, London and San Francisco. JAL is also considering closing 27 offices over the next two years, they said.

JAL, which posted a record group net loss of ¥99.04 billion in the April-June quarter, has already asked for more than ¥300 billion in fresh loans from its main creditors.

Of the envisaged ¥300 billion, JAL hopes to get up to ¥180 billion from the DBJ.

JAL proposed a revival plan in September to the government to receive funds, but Maehara rejected it, calling it unfeasible and lacking specifics.

Maehara launched the task force Sept. 25, tasking business reconstruction professionals with thoroughly checking JAL's massive debt woes.

Although Maehara stressed that JAL will be able to become stable with a viable rehabilitation plan, "I think this view is shared by all the government members that we have to avoid a situation in which aircraft are not able to fly."

JAL has also entered the final stages of arranging for a private-sector corporate revival body to mediate with its creditor banks for a debt waiver, other sources said Monday.

The airline plans to hold preliminary talks with such an organization by the end of this week under the "alternative dispute resolution" procedure, an out-of-court arbitration process. The ADR involves engineering a corporate revival with a noncourt third-party body acting as an intermediary. Bringing the procedure to a successful close requires securing creditors' consent.

If a company uses the ADR, financial institutions that write off the company's debts would receive tax benefits.

The task force expects the carrier to be able to post a consolidated operating profit of ¥40 billion in fiscal 2011 if it streamlines or sells unprofitable operations.

Information from Kyodo added


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