DealZone

When it comes to airlines, bankruptcy has a long track record as the most viable business model. Such is the drama unfolding in Japan, where the market appears to be betting that Japan Airlines will turn down an offer of capital from American Airlines and its Oneworld alliance partners in favor of a government-backed bankruptcy, which comes with the promise of an injection of cash more than twice as big as what is on offer from the alliance.

American and Co sweetened its offer to JAL to $1.4 billion to keep the struggling national carrier from joining hands with rival Delta Air Lines. But JAL shares plunged 45 percent to a record low, wiping out nearly $900 million in market value, as shareholders anticipated getting wiped out in a bankruptcy.

Japan’s state-backed turnaround fund would put JAL on much firmer ground than any airline group appears able to provide. The fund plans to put about 300 billion yen ($3.3 billion) in fresh capital into JAL if it files for bankruptcy and its banks agree to waive 350 billion yen in debt, sources told Reuters last week. The banks have all but agreed.

And no, the fund is not planning to accept investment from either Delta or American until new management is in place, if ever, a source tells us.