Japan Airlines Considers Chapter 11-style Bankruptcy

Japan Airlines Corp. [JAL] is considering bankruptcy proceedings.

The debt-ridden carrier, which is currently seeking its fourth government bailout since 2001, may be put through a Chapter 11-style bankruptcy procedure by The Enterprise Turnaround Initiative Corp. [ETIC], a state-backed turnaround body overseeing Japan Airlines’ restructuring.

According to a number of media, the ETIC has discussed with JAL’s creditors the possibility of bankruptcy along with making new loans and investment, but has not ruled out a restructuring outside of bankruptcy court.

JAL’s possible bankruptcy news follows recent proposals by both American Airlines (AMR) and Delta Air Lines (DAL) over the last several weeks to put $1 billion into Japan’s flagship carrier. The US carriers’ motivation is to get a greater foothold in Japan and access to JAL’s network to the rest of Asia.

Japan Airlines has some $15 billion in debt. If it fails it would be one of Japan’s largest bankruptcies in recent years.

Last week Finance Minister Hirohisa Fujii said the government would not guarantee funding to JAL, whose banks, which include the state-owned Development Bank of Japan and the country’s top three lenders, are wary of extending fresh loans without the state’s backing. At the same time, Japan’s government has ruled out allowing JAL to collapse.

JAL –Asia’s largest airline by revenue — has said it plans to cut thousands of job as well as apply a drastic reduction to its routes as part of its efforts to return to profitability.

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