The afternoon deal with JAL
For 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.
The rundown from the Web:
Q+A: Japan Airlines flirts with bankruptcy, seeks aid – Reuters
New JAL CEO as shares tumble – Reuters video
The confusing world of Japan and Japan Airlines – The Dallas Morning New
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.
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.
Let us wait for further developments on this matter and may it be favorable to majority.
Tracy, Velocity Fulfillment
DealZone Daily
American International Group has agreed to sell it’s Taiwan life insurance unit for $2.15 billion, a key step in its effort to raise cash after a U.S. government bailout last year saved the company from collapse, Reuters reports.
CIT Group Inc is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter told Reuters.
The following other corporate finance-related stories were reported by media on Tuesday:
PC maker Dell Inc is eyeing more acquisitions as part of a turnaround plan and is developing merger expertise, Chief Executive Michael Dell told Bloomberg in an interview.
Bank of America Corp has agreed to hand over to investigators documents describing the legal advice it received related to its purchase of Merrill Lynch, the Wall Street Journal reported, citing people familiar with the situation.
Japan Airlines Corp plans to seek a 250 billion yen ($2.8 billion) debt waiver as part of a new turnaround plan, Kyodo news agency reported on Tuesday.
Air Traffic Control
Japan Airlines announced cuts to its international flight schedule, in line with thousands of layoffs planned over the next year, as it tries to navigate its heavy debt load. But the Japanese national carrier has never been busier with a different kind of traffic.
Air France-KLM has joined the list of would-be suitors, according to a source familiar with the matter. Delta and American Airlines are seen as being in better position to win a stake in JAL — if Japan and the United States can reach an “open skies” agreement.
JAL is Asia’s biggest carrier by revenue, and a deal would help any Western airline gain access to China and other Asian routes via code-sharing agreements. We hear the going price for a minority stake and a code-sharing deal is somewhere in the range of $200 million to $300 million.
American Airlines is JAL’s preferred bidder because it is already linked with the carrier through the Oneworld alliance. But the Japanese government, which is pumping support into the struggling airline, is thought to prefer the financially healthier Delta or Air France-KLM.
JAL is said to be looking to close a deal by the middle of next month.
Christopher Kaufman; DealZone Editor
Delta’s Japan flight plan
Japanese media say Delta is in talks to take a big stake in Japan Airlines. It will spend several hundred million dollars to become JAL’s top shareholder, according to the reports – a purchase befitting the world’s biggest airline?
Delta has spent a chunk of 2009 swallowing Northwest, which it bought last year, and in July said it did not expect to record a profit this year. It is still talking about right-sizing and job-cutting. Meanwhile, JAL is forecasting a loss of 59 billion yen ($649 million) for the year ending next March. Northwest already had a strong presence in Japan – Narita airport was a major hub for its Asian business – so it’s not like Delta is breaking entirely new ground.
While there is a cold, hard logic to taking advantage of a tough economy to pick off competitors, at some point investors will need to be convinced that bigger is better, particularly in an industry like air travel, which depends so heavily on economic tailwinds. It’s hard to imagine what a position in JAL offers Delta that could warrant spending so lavishly at this point in the recovery.
