JAL shares drop as bankruptcy looms larger

January 8, 2010
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, TOKYO, Jan 8 – Share prices in Japan Airlines (JAL) took another dive on Friday following news reports that the government is finalising a bankruptcy option for the debt-ridden carrier.

Asia\’s biggest carrier sank 10.53 percent to end the morning session at 68 yen on the Tokyo Stock Exchange.

The Japanese government is now finalising a plan to have JAL file for bankruptcy with a guarantee of public support so that the airline can continue operations, Jiji Press and Kyodo News said.

Transport minister Seiji Maehara and newly-appointed Finance Minister Naoto Kan held a closed-door meeting Friday morning with the state-backed Enterprise Turnaround Initiative Corp., which is overseeing JAL\’s restructuring.

Japan\’s government has pledged to avoid a collapse of the former state-owned carrier, but has refused to rule out bankruptcy proceedings, which could aid JAL\’s restructuring but would likely leave investors out of pocket.

Asked if the government is ready to provide support in case JAL filed bankruptcy, Kan told reporters the government was "fully considering such a situation."

Maehara separately said: "Our stance is that we would like the Enterprise Turnaround Initiative Corp. to rebuild (JAL) with public funds."

The body will decide on the carrier\’s rescue plan on January 19, likely using a prepackaged bankruptcy, the Asahi Shimbun reported on Friday.

Earlier reports said the turnaround body is preparing a 300 billion yen investment if the airline files for bankruptcy while intending to ask JAL\’s creditors to waive a further 300 billion yen in loans to the airline.

The carrier is seeking its fourth government bailout since 2001 to enable it to keep flying in the face of mounting debts.

The airline, which lost about 1.5 billion dollars in the six months to September, has said it plans thousands of job cuts and a drastic reduction in routes as part of its efforts to return to profitability.

JAL has been offered financial assistance by both American Airlines and Delta Air Lines, which are competing to take a stake in the Japanese company and increase their share of the lucrative Asian market.

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