Tuesday, January 19, 2010 0 comments ++[ CLICK TO COMMENT ]++

Japan Airlines flies into bankruptcy

Not confirmed yet but it looks like Japan will see one of the largest bankruptcies in its history when national airline, Japan Airlines, declares bankruptcy tomorrow. This is a good example of how one shouldn't speculate based on government intervention. Apparently many were expecting the government to intervene but that didn't happen. Bloomberg has the story:


“Everyone expected the government to support JAL and now it’s going into bankruptcy,” said Yoshihiro Nakatani, who oversees about 80 billion yen ($882 million) as a senior fund manager at Asahi Life Asset Management Co. in Tokyo. “This could be a turning point for the whole market,” he said, adding he doesn’t own any of JAL’s bonds.


A state-affiliated fund will make a final decision on a proposed restructuring for Tokyo-based JAL today after the carrier sought help following a 131 billion yen first-half loss. The plan will probably include the airline, the recipient of four state bailouts since 2001, seeking court protection, according to three people familiar with the matter.

The yield on JAL’s 10 billion yen in 2.94 percent notes due 2013 widened to 77 percent yesterday from 70 percent Jan. 15, according to Japan Securities Dealers Association prices on Bloomberg. Its 10 billion yen in 3.1 percent notes due 2018 traded at a 44 percent yield compared with 11 percent a month earlier, JSDA prices show.

The carrier will file for bankruptcy at 5 p.m. today at the Tokyo District Court, Dow Jones said, citing people familiar with the situation. The government has repeatedly said that JAL will continue flying.


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The carrier has at least 1.5 trillion yen in liabilities and a bankruptcy may be Japan’s sixth-biggest, according to data compiled by Tokyo Shoko Research Ltd. JAL bondholders will likely get 25 percent of face value if the company seeks bankruptcy, according to the median forecast in a Bloomberg News survey of five analysts.


I decided to mention this story because this may signal a change in Japanese government policy. The new left-leaning government appears to want the free market dictate fate. I wonder if the government will let other insolvent firms seek bankruptcy. If there is a shift towards restructuring through bankrupty, it will alter the face of Japan. My impression is that Japan has historically attempted to prop up failing firms.

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