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TOKYO (Reuters) - It looks increasingly likely that Japan Airlines Corp, Asia's biggest airline by revenue, will file for bankruptcy protection as part of a restructuring plan being hammered out by a state-backed fund.
Saddled with about $16 billion in total liabilities, a JAL bankruptcy would be one of the largest in Japanese history and could trigger a shake-up in the country's airline industry.
Delta Air Lines and American Airlines are both courting JAL with offers of capital and close cooperation on international routes.
Following are some questions and answers about JAL's restructuring:
JAL applied in October for help from the Enterprise Turnaround Initiative Corp of Japan (ETIC), a body of specialists which can draw on state-backed funding to invest in and buy ailing firms' debt. ETIC has effectively said it will back JAL as long as the carrier files for bankruptcy protection - similar to Chapter 11 in the United States - and its banks waive loans.
Creditors have countered with a plan under which JAL would be restructured out of court, and some government officials fear bankruptcy could trigger confusion and ground planes.
ETIC, which is unlikely to support any private out-of-court revival for JAL, is eyeing January 19 to 22 as a possible decision time, with JAL filing for bankruptcy protection on the same day.
JAL's top creditors are the state-owned Development Bank of Japan (DBJ) and units of Japan's top-three lenders, Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMFG).
At end-September, DBJ had 276 billion yen worth of debt extended to JAL. MUFG had 73.5 billion yen, Mizuho 76 billion yen and SMFG 23 billion yen, according to a government-appointed task force.
ETIC has asked creditors to forgive about 350 billion yen in debt, 70 percent of which would be shouldered by the main banks. ETIC reckons the total debt reduction could reach 730 billion yen including bonds, pension obligations and other liabilities set to be cut in the plan. The big banks have probably set aside funds to cover losses on their JAL exposure.
A filing under Japan's Corporate Rehabilitation Law would lead to a complete reduction in capital, making JAL shares worthless. But ETIC may seek to keep JAL's shares listed in Tokyo, helping explain why the stock is still holding up at around 70 yen.
Domestic rival All Nippon Airways (ANA) is the likely winner from a JAL bankruptcy. ETIC estimates JAL's revenues could drop 10 percent in the year from April and another 5 percent the following year after a bankruptcy filing. ANA is well placed to pick up that lost business.
ETIC predicts JAL could post a net loss of about $13 billion in the year to March to pay for restructuring and other charges, leaving it with a negative net worth of about 840 billion yen. Even so, Delta and American have stepped up their courtship, eyeing JAL's Asia network and a stronger foothold in Japan ahead of the expansion of Tokyo's Haneda airport.
Both would seek anti-trust immunity with JAL under an "open skies" treaty between the U.S. and Japan, allowing them to boost revenues and save costs by cooperating on pricing and scheduling.
JAL has said it would decide this month on whether to remain with American in the Oneworld alliance or switch to rival SkyTeam with Delta. The CEOs of both U.S. carriers have pitched in person to Japan's transport minister. But Seiji Maehara said on Friday the deadline would be tough. A decision may have to wait until JAL names a new chief executive to replace Haruka Nishimatsu, who has said he'll stand down once JAL has a restructuring plan in place.
American is said to have sweetened its investment offer, which is backed by private equity firm TPG, to $1.4 billion. That's nearly three times the $500 million in equity offered by Delta, whose total financial aid package is around $1 billion including loans.
Some analysts argue Delta, the world's biggest airline, would be the best partner for JAL as they have more overlapping routes, allowing JAL to cut costs.
ETIC may put 300 billion yen in fresh capital into JAL, and could ask the DBJ to provide loans to keep JAL flying while it works through a bankruptcy. The fund would also guarantee payment on fuel, parts and other commercial deals to reassure JAL's suppliers and partners. ETIC also wants to speed up, through some opt-outs, the Corporate Rehabilitation Law process, which can take several years.
Creditors want the ministry and JAL to run simulation tests to gauge potential complications after a bankruptcy filing, such as whether flights would be suspended or if the carrier could get its hands on enough cash.
Editing by Ian Geoghegan