Iconic airline JAL has filed for bankruptcy protection with debts of more than $25 billion, and has promised to slash its workforce by more than 30% to keep its planes in the air.
The bankruptcy filing is designed to allow the stricken company, whose market capitalisation has fallen to just $US150 million (that’s less than one standard passenger jet), to try and trade its way out of trouble.
Shareholders will now lose their holdings, and the company’s lenders will be forced to forgive around 30% of the company’s enormous debt, which is now likely to be much higher than the $25 billion figure contained in JAL’s September accounts.
The collapse is the fourth biggest in Japanese history and the biggest by a non-financial firm.
Japan’s government has now prescribed what Prime Minister Yukio Hatoyama has described as “tough love”. A government-appointment administrator, called Enterprise Turnaround Initiative Corp, is expected to run the business for three years.
As well as slashing its workforce, the company will need to cut 31 routes over the next three years and invest in more fuel-efficient planes to reduce its cost base.
The bankruptcy is also likely to send shockwaves through the global airline sector, with JAL expected to soon announce it is leaving the OneWorld Airline Alliance, which Qantas is a member of.
This could have some affect on the Australian airline, which code-shares with JAL on its Australia-Japan route.
JAL president Haruka Nishimatsu is expected to resign in the coming days, with his role set to be filled by Kazuo Inamori, the entrepreneur who founded the technology company Kyocera Corp. The 77-year-old has a track record of reviving struggling firms.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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