Japan is looking at guaranteeing about €5.3 billion in funding to Japan Airlines Corp, a government source said today, easing concerns that the carrier could run out of funds and helping send its shares 7 per cent higher.
The 700 billion yen in guarantees would be included in an extra budget expected to be compiled this week and may cover investments and loans, the source said, speaking on condition of anonymity.
Debt-laden JAL, which is seeking its fourth state bailout since 2001, has warned it could face bankruptcy unless it addresses a pension shortfall of about 330 billion yen.
But a state-backed turnaround body will not be making a decision on whether to inject public funds into JAL until January.
"The news eased worries that a shortage of operating funds ahead of the year-end might force JAL to stop flying," said Mizuho Investors' Securities senior analyst Takahiko Kishi.
But he added that government guarantees alone would not be enough to help JAL avoid bankruptcy as the carrier also needs to deal with other issues including its pension obligations.
"Unless JAL can solve its pension reduction and other internal issues, they are not likely to get a public injection because the government would not be able to win over taxpayers," he said.
The struggling carrier is also likely to gain some additional capital from foreign carriers.
American Airlines said last week that it and other members of the Oneworld airline alliance along with private equity fund TPG are willing to invest $1.1 billion in JAL to prevent it defecting to Delta Air Lines and the rival Skyteam group.
Delta has said that it and other SkyTeam members are ready to offer JAL a total financial aid package of about $1 billion, including a $500 million equity investment. Delta said on Thursday it may also team with a fund to sweeten its proposal.
Japan's former national carrier is aiming to decide an alliance partner by the end of this year.
JAL shares jumped 7 per cent to 107 yen, their highest closing level since November 11th, and outperforming a 1.5 per cent gain in the benchmark Nikkei average. JAL's stock earlier rose as high as 110 yen, up 10 per cent, but is still down about 50 per cent this year.
Reuters