DealZone

The afternoon deal with JAL

Kazuo Inamori speaks to reporters after meeting Prime Minister Yukio Hatoyama at the latter's official residence in TokyoFor a freshly minted CEO, Japan Airline’s Kazuo Inamori isn’t saying the standard fare.

“I don’t know anything about the transportation industry, but I would like to make my best contribution,” Inamori told reporters after meeting Prime Minister Yukio Hatoyama, adding that he did not plan to take a salary.

“I am old and a full-time job is hard for me, so I would like to work three or four days a week and I will work for free.”  Read the full story here.

The selling has been steep for Japan Airlines stock and many expect bankruptcy is looming. Not to understate the matter, but Inamori is in for a wild ride.

JAL in a tailspin

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.

from Commentaries:

Consolidation Air, nobody’s favourite airline

JAL/With airlines around the world struggling to survive the economic downturn, the time should be nearing to break the taboo of consolidation in the sector.

Airlines around the globe face losses of $11 billion in 2009, according to IATA. Margins are expected to fall this year and next, with analysts predicting carriers are likely to struggle for years to reach levels needed to produce an acceptable return for capital market investors.

Societe Generale estimated in a recent note that margins would drop to -3.1 percent in 2010 before recovering to 1 percent in 2011, well short of the 10 percent needed.