JAL Against Bankruptcy, Prefers Delta Offer

January 3, 2010

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The president of Japan Airlines said he is against a bankruptcy proceeding under a state restructuring plan and has no plans to completely withdraw the carrier from overseas flights, the Asahi Shimbun reported.

In an interview published on Sunday, the Asahi also said JAL President Haruka Nishimatsu preferred Delta Air Lines as the carrier's overseas partner to American Airlines.

JAL, hit by a global downturn in travel and a bloated cost base, has been seeking a bailout from the state-backed Enterprise Turnaround Initiative Corporation of Japan (ETIC), which is expected to make a decision on whether to support the airline this month.

On Sunday, the government said the state-owned Development Bank of Japan would double its loan facility for JAL to JPY200 billion yen (USD$2.15 billion), Kyodo news agency reported, as the airline struggles for survival.

The ETIC, a state-backed fund established to inject capital into and buy the debt of struggling but viable firms, has told JAL's main creditors it favours a bankruptcy proceeding as part of its rescue package, sources said.

But Nishimatsu is against the plan, suggesting tough negotiations ahead between the airline and the ETIC, the Asahi reported.

"The image (of bankruptcy) would affect us and we would lose customers," Nishimatsu was quoted as saying. "If we lose recognition from customers, restructuring would be difficult and this will trouble the ETIC too."

JAL's shares hit a record low last week on expectations that it was headed for bankruptcy.

The Asahi also said Nishimatsu was eyeing an alliance with Delta and the SkyTeam airline group, ending its current ties with American Airlines and the oneworld alliance.

The two US carriers have made rival offers of financial aid, keen to gain a greater foothold in Japan and access to JAL's network to the rest of Asia.

"(Switching to SkyTeam) would involve a big process of changing systems, but (we need to consider) whether or not to value Asia," Nishimatsu told the Asahi. "In that sense, SkyTeam has many Asian carriers."

JAL has said it will make a decision on which overseas partner it will choose by early January.

Despite being burdened by unprofitable international routes, Nishimatsu ruled out a complete withdrawal from overseas flights, saying Asian routes offered business opportunities.

Several Japanese cabinet ministers have asked JAL to hand its international business over to rival carrier All Nippon Airways, but the transport minister is opposed to the idea, the Mainichi Shimbun reported last week.