Japanese government mulls bridging loan for JAL

Singapore
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Japan's government could provide beleaguered Japan Airlines (JAL) with a bridging loan until a quasi-state agency decides if it will help to restructure the carrier.

"The government team will do its best to take steps to ensure safe and stable operations of the airline," transport minister Seiji Maehara told Japanese reporters on Friday, according to various newspapers.

The ¥180 billion ($1.97 billion) bridging loan could come from JAL's largest creditor, the state-owned Development Bank of Japan, add the reports. This will be a stopgap measure until the airline can secure permanent financing from the Enterprise Turnaround Initiative Corp (ETIC), with which it has begun talks

The move comes after the Oneworld alliance carrier reported a net loss of ¥99 billion in the three months to June, and forecast a net loss of ¥63 billion for the fiscal year to March 2010. It also has an estimated ¥1.35 trillion of debt and a high cost base. Bankers estimate that its liabilities exceed its assets by about ¥250 billion.

JAL said on Thursday that it had asked the ETIC, which was set up earlier this month to invest in and revive companies with a large amount of debt, to help it to restructure its operations. This came as a government-appointed task force that had been looking into how carrier be helped recommended that the ETIC was the best option.

The ETIC can draw on up to ¥1.6 trillion in state-guaranteed funding, and will decide on how it can help JAL after studying its assets and prospects for recovery. This could take several months, and the solution could involve JAL reducing its fleet size, cutting its work force, shrinking its network, and slashing costs including pension payments.

"The task force was to initially announce a framework of the restructuring plan by the end of October, but details regarding financial assistance and business recovery plans were not revealed. Going forward, the ETIC will likely assist JAL based on the restructuring plan compiled by the task force," says Hitoshi Hosoya, a research analyst at JPMorgan.