JAL wins approval to cut pensions by 30%

Japan Airlines on Tuesday finally won the two-thirds of support it needs from its retirees to sharply cut their pensions, while speculation that the struggling carrier would soon file for court-backed restructuring reached new heights, sending the shares down its daily limit to a record low.

JAL plunged 44.8 per cent to Y37 amid worries that court-approved restructuring that is similar to Chapter 11 in the US could render the shares worthless. A local report said that the airline, which is widely held by individual investors, may be delisted from the stock exchange.

The carrier said that 67 per cent of its existing retirees, or 5,991 out of 8,936 already retired employees, had now agreed to the requested 30 per cent cut in pension pay-outs. Under Japanese law, companies must win the support of two thirds of those affected by cuts.

Last week, the airline won approval from 91 per cent of the 15,742 existing employees on the same pension scheme that was introduced in 1992, after the company was privatised. The scheme includes about a third of JAL’s workforce.

The agreement should significantly help JAL, whose pension-related obligations account for more than a quarter of its Y1,400bn ($15bn) in interest-bearing debt. It is also seen as crucial for the lossmaking airline’s future as well as being a key demand of bankers who have been asked to forgive several hundred billion yen in loans.

The state-backed Enterprise Turnaround Initiative Corporation is getting closer to finalising a restructuring plan for JAL that involves prepackaged court-backed restructuring, including a Y300bn ($3.3bn) injection from the fund, a person familiar with the situation said.

The three commercial banks that are the main lenders to JAL have broadly agreed to restructure JAL while keeping it flying, Seiji Maehara, transport minister told reporters on Tuesday. He was not specific about what that restructuring entailed. However, local reports said that the banks have accepted the court-backed plan.

“The day of decision on whether to support a restructuring plan is drawing closer and closer, and I hope for the cooperation of all those interested in the big objective of restructuring JAL while keeping its planes in the air,” said Mr Maehara.

Prime minister Yukio Hatoyama told reporters earlier on Tuesday that “in general” shareholders did bear some responsibility.

It would be an unprecedented move for the government to allow JAL to file for court-protected restructuring and would draw a clear distinction between the four-month old administration led by the Democratic party of Japan and the previous one, led by the Liberal Democratic Party. Under LDP rule, the government bailed out JAL three times with about Y270bn since 2001.

Peter Tasker, from Arcus Research, said: “[If JAL does file for court-protected rehabilitation] the new government would be making a statement that the sacred cows of the LDP are no longer sacred. It would be quite symbolic.”

American Airlines officially increased the amount it and partner, TPG, is prepared to invest in JAL, and said it would guarantee $300m of additional revenue over three years. The ETIC does not want capital from either American or Delta for now, a person close to the situation has said.

Speaking to reporters at the prime minister’s official residence, Kazuo Inamori, the 77-year-old founder and chairman of Kyocera who has been mooted as a possible new chief executive for JAL, said he would meet an official from ETIC on Wednesday and ”listen” to their explanation.