Japan Airlines <9205.T> moved a step closer to bankruptcy on Friday by drawing down $1.6 billion in emergency funding and with the government setting Tuesday as the day to officially start a state-led restructuring.
JAL, Asia's largest airline by revenues but with a market value now lower than that of budget carrier Skymark Airlines <9204.T>, will file for bankruptcy protection as early as Tuesday, sources have told Reuters, as part of a restructuring being crafted by a state-backed turnaround fund.
Transport minister Seiji Maehara met Prime Minister Yukio Hatoyama and agreed Tuesday would be the day the state-backed fund would officially decide to support the carrier, a deal contingent upon it filing for bankruptcy.
We are doing everything possible to reduce anxiety and ensure that X-day will not cause any confusion, Maehara told reporters on Friday.
'X-day' is a term used by those working on JAL's restructuring to refer to the day it will file for bankruptcy.
JAL, mired in losses and with about $16 billion in debt, applied in October to the Enterprise Turnaround Initiative Corp of Japan (ETIC), a fund that can draw on government-backed funding to bail out ailing firms.
The ETIC is expected to make an official decision next week to support JAK with public money after the carrier files for what could be Japan's sixth-largest bankruptcy.
JAL said on Friday it had procured 145 billion yen ($1.6 billion) in funds remaining from a 200 billion yen credit line provided by state-owned Development Bank of Japan, indicating it was building up emergency cash.
We are preparing so we can make the necessary outlays when needed, JAL spokesman Satoru Tanaka said.
Japan Airlines International, which handles domestic and overseas flights, and JAL Capital, which raises operational funds, are among units that will also file for bankruptcy and be part of the bailout, a source with knowledge of the matter said.
JAL declined to comment.
We expect at least the group's three core companies -- JAL, JAL International and JAL Capital -- to file for bankruptcy protection under the government-led rehabilitation scheme, said Minoru Nakano, an official at bankruptcy research firm Teikoku Databank.
It is also possible that some other restructuring measures will be announced for other smaller units at the same time.
JAL shares closed down 1 yen at 7 yen, giving it a market value of about $210 million. The stock has lost about $1.8 billion this week amid growing expectations it will file for bankruptcy and be delisted from the Tokyo exchange.
The ETIC plans to put about 300 billion yen in fresh capital into JAL after it files for bankruptcy. JAL's banks, which include the country's top private lenders, have been asked forgive about 350 billion yen in debts, sources have said.
JAL's restructuring will include cutting some 15,000 jobs, roughly a third of its work force, eliminating two dozen more routes and halving the number of subsidiaries through streamlining and asset sales, a source said.
The overhaul will be led by Kazuo Inamori, the 77-year old founder of electronics maker Kyocera Corp <6971.T>, who agreed on Wednesday to replace chief executive Haruka Nishimatsu.
Hilton Worldwide said on Friday it would take over management of a JAL hotel in located in Fukuoka in southwestern Japan. Hilton said it would spend $20 million to refurbish the hotel, one of Japan's largest with more than 1,000 rooms.
(Additional reporting by Yuko Inoue and Chisa Fujioka; Editing by Michael Watson and Dan Lalor)
($1 = 91.01 yen)