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Japan Airlines shares plunge 24% on bankruptcy speculation

Text by News Wires

Latest update : 2009-12-30

Japan Airlines (JAL) shares plunged 24% on the Tokyo Stock Exchange Wednesday amid bankruptcy speculation. At one point the debt-ridden airline touched 60 yen, its lowest price since 2002.

AFP - Fears deepened Wednesday about the future of debt-ridden Japan Airlines as shares in Asia's biggest carrier plunged to a record low on fears it might file for bankruptcy, dealers said.

JAL, battered by the global recession and swine flu pandemic, is scrambling to slash costs and seeking its fourth government bailout since 2001 to keep flying in the face of mounting losses.

Media reports that bankruptcy is one option for the cash-strapped carrier have spooked investors.

Shares in the airline slid to 60 yen at one point, the lowest level since JAL merged with Japan Air System Co. in 2002. They ended the day down 23.9 percent at 67 yen, after an 8.3 percent dive on Tuesday.

"Speculation is rife that JAL may face court-led proceedings, which could result in its delisting" from the Tokyo Stock Exchange, said Kazuhiro Takahashi, equity information chief at Daiwa Securities SMBC.

"We have the impression that somebody needs to take responsibility in order to move JAL's restructuring plans forward. Worries are growing among shareholders," he said.

Cabinet officials were expected to meet later Wednesday to discuss JAL's problems.

Local media have reported that the state-backed Enterprise Turnaround Initiative Corp., which is overseeing JAL's restructuring, is considering the possibility of the carrier filing for protection from creditors.

Bankruptcy protection can enable a company to restructure its debts with creditors and implement other measures to emerge stronger, as seen with ailing US auto giant General Motors.

But it can also mean that shareholders will see the value of their investment wiped out.

JAL, 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.

It has been offered financial assistance by both American Airlines and Delta Air Lines, who are competing to take a minority stake in the Japanese carrier, eyeing its coveted Asian landing slots.

Japan's government has ruled out allowing JAL to collapse, but has left the door open to possible bankruptcy proceedings to allow the group to restructure more easily.

"It is so murky how the company will rehabilitate itself," said Hiroichi Nishi, a broker at Nikko Cordial Securities.

"Transport Minister (Seiji) Maehara said he would not let JAL collapse but (the authorities) have not reached any conclusion," Nishi noted.

The global economic downturn has dealt a heavy blow to JAL's efforts to recover from a long period of financial turbulence stretching back to its privatisation more than two decades ago.

JAL is seeking consent from its retirees to reduce their generous pension allowances -- seen as a major reason for its financial troubles.

In November JAL withdrew its previous forecast for a net loss of 63 billion yen for the full financial year to March 2010, saying it was difficult to forecast its future performance. Last year it lost 63.2 billion yen.

Date created : 2009-12-30