Japan Airlines surges as gov't seeks funding boost

TOKYO Mon Jan 4, 2010 5:24pm EST

1 of 3. A Japan Airlines aircraft flies over a woman in Kawasaki, south of Tokyo January 4, 2010.

Credit: Reuters/Issei Kato

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TOKYO (Reuters) - Japan Airlines Corp 9205.T shares jumped 31 percent on Monday as the government looked to secure funds to prevent the carrier from running out of cash as it awaits a possible bailout.

The stock lost a quarter of its value last Wednesday, the last trading day of 2009, after sources said a government-backed turnaround fund was leaning toward a bankruptcy proceeding for JAL as part of its restructuring plan.

But the shares rebounded on news the government had asked the state-owned Development Bank of Japan to double its credit line to JAL to 200 billion yen ($2.2 billion). A spokesman for the DBJ said it was considering the government's request.

The extra funding is aimed at keeping the carrier going until the state-backed fund -- the Enterprise Turnaround Initiative Corp of Japan (ETIC) -- decides later this month whether or not to support JAL with taxpayer money.

A bankruptcy would complicate JAL's talks with Delta Air Lines Inc (DAL.N) and American Airlines, a unit of AMR CorpAMR.N, both of which are courting Asia's largest carrier by revenue with promises of financial aid and revenue growth through partnering on overseas routes.

"The move appears to have erased worries about JAL's immediate credit concerns," said Takashi Kishi, senior analyst at Mizuho Investors Securities.

"But JAL's stock has already become a money game. I think it will rise and fall sharply in response to government moves and media reports until ETIC makes a decision."

JAL stock jumped to 88 yen as volume surged to 231 million shares, six times the daily average over the past three months. The stock lost two-thirds of its value in 2009.

For a Graphic on JAL, click: link.reuters.com/ryq59g

CASH IS KING

The chances of a JAL bankruptcy appeared to increase late last month when Finance Minister Hirohisa Fujii said the government would not guarantee any more loans to JAL. Without state backing, private banks are unlikely to lend.

JAL has already used 55 billion yen of a 100 billion yen credit line set up by the DBJ and is burning through cash due to sluggish demand and a bloated cost base that makes the carrier less efficient than rival All Nippon Airways Co Ltd(9202.T).

The extra 100 billion yen, if the DBJ decides to extend it, would give JAL a cushion while ETIC deliberates on support.

A previous government task force that had been working on JAL's restructuring had estimated the carrier would have a negative cash flow of 191 billion yen between October and March, and would need about 180 billion yen in funding to keep flying and hold on to a reasonable level of cash.

Dealing with the ailing airline is one of a long list of problems confronting Prime Minister Yukio Hatoyama's new government, which took office in September after his Democratic Party trounced the long-ruling conservative rival on a platform that promised to focus on the interests of consumers and workers.

A bankruptcy could wipe out the value of JAL's shares, which are widely held by individual investors, and trigger greater losses for creditors, which include the DBJ and the country's three largest private banks.

The Democrats are wary of the potential disruption to air travel that could come with a bankruptcy, but are at the same time wary of using public funds to prop up a company that has already been bailed out by the state three times in the last decade.

The president of JAL, Haruka Nishimatsu, said he is against a bankruptcy proceeding under a state restructuring plan, the Asahi newspaper reported on Sunday.

The Asahi also said quoted Nishimatsu as saying he was eyeing an alliance with Delta and the SkyTeam airline group, ending current ties with American Airlines and the Oneworld alliance.

JAL spokesman Taro Namba said the company could not confirm the president's remarks, adding that nothing has been decided.

"We think this is going to continue to be a story in flux," Helane Becker, a U.S.-based analyst with Jesup & Lamont Securities, said on Monday.

"JAL will continue to look around for money and will continue to talk to American and Delta and try to get the best deal available to it."

Separately, the Yomiuri newspaper reported last week that All Nippon Airways was considering taking over JAL's international routes. An ANA spokesman denied the report.

ANA shares rose 5.2 percent, outperforming a 1 percent rise on the Nikkei average .N225. Delta shares fell 1.4 percent on the New York Stock Exchange, while American parent AMR shed 1 cent to $7.72.

(Reporting by Nathan Layne and Nobuhiro Kubo; editing by Edwina Gibbs, Ian Geoghegan and Andre Grenon)

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