The Deal
Wednesday, November 25, 
1:00 pm

Japan Airlines seeks government funding

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jal.gifIt is not only banks and motor companies that are tapping governments for funding.

Japan Airlines Corp., Asia's biggest carrier, wants the Development Bank of Japan to extend it ¥200 billion ($2 billion), to repay loans and cover shortfalls in its investment budget, according to a report in Japanese daily The Asahi, and Japan's public broadcaster NHK.

The airline, known as JAL, is in a bind. It has little cash in the bank, ¥35 billion of bonds coming due over the next four months, and it expects to post a lost of ¥34 billion when it publishes accounts for the fiscal year to March.

The debt markets are all but closed to the airline, a result of its junk credit status. Investment from a competitor is also out of the question. Slumping passenger figures have pushed most airlines into the red and depleted what cash reserves they had. None are in a position to forward the money JAL needs. As for financial investors, those days are gone.

Few believe that the Japanese government will say no should JAL come calling. To do so would send JAL's share price into a tailspin and threaten investment plans ­ making it even less competitive.

Competition is a key part of the airline's problems. Many of JAL's regional rivals in the South, East and Southeast Asia are state owned, so they don't share its funding problems. For instance, Singapore Airlines Ltd. is majority owned by state investment fund Temasek Holdings as are the Middle Eastern airlines that compete on many JAL's routes.

If the Development Bank of Japan provides the ¥200 billion, its loans to the airline will total about ¥484 billion. The bank is not a shareholder, but given that JAL's market capitalization stands at just ¥538 billion, it is increasingly difficult to argue it isn't state-sponsored. - Paul Whitfield

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