Published: Wednesday, 11 Nov 2009 | 3:17 AM ET

Text Size

Private equity firm TPG Capital could partner with American Airlines to invest in Japan Airlines and prevent a defection to a rival airline alliance, the chief financial officer of American parent AMR Corp said.

Katsumi Kasahara / AP

News of a potential investment from TPG followed the Japan government's pledge to enlist a state bank to offer Asia's largest airline by revenues a bridge loan to keep it from running out of cash this month.

JAL is headed for its fourth annual loss in five years, weighed down by $15 billion in debt and a bloated cost base, including a pension deficit estimated at $3.7 billion as of March.

The government did not announce the size of the loan but two sources told Reuters on Wednesday the Development Bank of Japan would offer a 100 billion yen ($1.1 billion) line of credit to prop up JAL while it awaits approval for its fourth state bailout since 2001.

Even as it struggles to avoid bankruptcy, JAL is being wooed separately by American Airlines and Delta Air Lines, which are keen to gain access to JAL's network in Asia and a stronger foothold in Japan.

AMR CFO Thomas Horton said TPG could join it in an equity investment into JAL, its partner in the Oneworld airline alliance. A deal with Delta would see JAL defect to the rival Skyteam group.

"As appropriate and if it were welcomed by Japan Airlines and the government of Japan, TPG could also be part of a comprehensive recovery plan," Thomas Horton, CFO of AMR Corp, told a gathering of reporters.

"But I think we are going to have see how this thing begins to unfold because there are some very important policy issues that need to be addressed at the JAL and the government of Japan level before discussing what participation a U.S. entity might have."

Both American and Delta have offered to provide JAL with capital as part of any alliance, though the amount is unlikely to be significant in the context of JAL's larger financing needs.

JAL Lifeline

The government said on Tuesday it would consider legislation to forcibly slash JAL's pension payouts, seen as a prerequisite for a bailout from the state-backed Enterprise Turnaround Initiative Corporation of Japan.

Shares of JAL, which have lost almost half their value this year, rose 4.8 percent after the government announced its support for the pension and bridge loan issues. The benchmark Nikkei Average ended flat.

The ETIC is expected to take until January to study JAL's assets and decide whether it should receive state aid but needs cash to keep it in operation.

In addition to the 100 billion yen commitment line from the Development Bank of Japan, units of Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group will provide a total of 25 billion yen in loans to buy aircraft, sources told Reuters.

The 25 billion yen loan from the private banks will be backed by the Japan Bank for International Cooperation, the sources said, speaking on condition of anonymity because the deal has not been made public.

The loans are part of a government rescue package for the airline ahead of its first-half earnings announcement on Nov. 13. The Nikkei business daily reported JAL was likely to post an operating loss of more than 90 billion yen, hurt by a decline in passengers and per-customer sales.

Sources said JAL will also apply for a debt restructuring scheme on Nov. 13 under which a third party would mediate between JAL and its creditors.

The scheme, called "Alternative Dispute Resolution", would trigger a suspension of loan payments. This would reduce the amount of funds JAL needs to secure in the near term.

JAL CEO Haruka Nishimatsu is likely to resign to take responsibility for JAL's woes, one source said.

A JAL spokesman said nothing has been decided on the size of the loans or whether it would apply for the ADR scheme.

Print

Email

Text Size