Shares in Japan Airlines (JAL) tumbled this morning on growing expectations that the struggling carrier is headed for bankruptcy under a state restructuring plan.
Reports said a government-backed turnaround fund has told JAL's main creditors it is leaning towards bankruptcy proceedings as part of a rescue package for Asia's largest carrier.
A bankruptcy could wipe out the value of JAL's shares and trigger greater losses for creditors, which include the state-owned Development Bank of Japan (DBJ) and the country's three largest private banks.
With $16 billion in total debts, a JAL failure would rank as the sixth-biggest in Japanese history. It could also affect talks with American Airlines and Delta Air Lines, which are courting JAL with rival offers of financial aid.
The chances of bankruptcy appeared to increase last week when Finance Minister Hirohisa Fujii said the government would not back any more loans to JAL. Private banks are unlikely to extend loans without guarantees against future losses.
Japan Airlines applied in late October for a bailout from the Enterprise Turnaround Initiative Corp of Japan (ETIC), an organisation of turnaround specialists that can draw on 1.6 trillion yen ($17.4 billion) in state-guaranteed funding for the financial year to March to offer financial aid to ailing firms. The ETIC is expected to make a decision on whether to support JAL next month.
The ETIC has reportedly told JAL's creditors it is considering a plan under which the airline would apply for court protection under the Corporate Rehabilitation Law, a process similar to Chapter 11 in the US.
