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Japan Airlines seeking, getting capital infusions

Back in October, we reported that Japan Airlines was ready to sell its credit card unit off to the highest bidder. Way back in June, we also reported that JAL, which carries 75 times more debt than operating profit on its balance sheets, might be looking for a debt-for-equity swap, though there could be some trouble getting that in order as anyone who wants to take a substantial equity stake in the firm would want to see a clear and detailed plan for returning to profitability.

Just before New Years, we learned that JAL was considering issuing somewhere between 100-150 billion yen worth of preferred shares to its creditors and business partners. The Nikkei, however, quoted Motokazu Yoshida, Mitsui’s senior executive managing officer, as saying, “Making an investment just out of sympathy will be difficult to do.” Read more

Yomiuri: Japan’s travelers up in arms over new fuel surcharges

Back in November, it was reported that although Japan Airlines had decided to raise its fuel surcharges on international flights for the winter months, rival All Nippon Airways declared that it would not increase its prices. This was the first time that the two firms have not moved in accord with regard to fuel surcharges on international flights.

Now, we’ve been told by the Yomiuri that JAL’s surcharge on flights to Hawaii has jumped from 5,000 yen per person to about 19,800 yen, and will be boosted to 25,000 yen in January. While it may have seemed as though ANA was missing out on some easy profit taking, it now appears as though they have made the better move from a PR standpoint. Read more

Friday morning Japan business headlines

It’s official: The Cabinet has approved a rate fare for taxis in the Tokyo area. There’s no word yet on how the breakdown in voting went, but it passed. The basic taxi fare in Tokyo will rise from 660 yen to 710 yen on December 3rd. The Ministry of Transportation still has to approve the plan.

Japan Air Lines, which is still stripping down personnel costs and selling off assets, is preparing to sell its credit card division to the highest bidder. Whether JAL intends to sell all or part of the credit card unit is not yet clear.

According to the Yomiuri Shimbun, 60% of public projects in Japan are never put to tender. By law, all contracts for public projects should be tendered publicly under competitive bidding, unless the work is urgent or the contract very small.

The Australian wins our ‘bad headline pun’ award in an article today on Prime Minister Yasuo Fukuda: Japan’s rising son has no plan to illuminate any big picture reform

The Financial Times has done a writeup on Japan’s flagging market for housing starts.

JAL speeding up restructuring efforts: Is a debt-for-equity swap with a major lender in the works?

In an excellent piece published on Thursday, the Wall Street Journal warned that despite the steps toward restructuring that Japan Air Lines has announced, investors may want to wait for a clearer path to emerge before buying shares in Japan’s largest air carrier.

At issue is the fact that although JAL needs cash to buy new, more fuel-efficient airplanes, banks are reluctant to extend loans to a firm carrying debt that is 75 times greater than its operating profit, at $13.78 billion. Then we get the rumor:

[I]n a sign of tough times, last month it asked its banks to give up part of their debt in exchange for nonvoting shares in the company, people close to the situation say.

Such a debt-for-equity swap would certainly be risky for the banks, amidst the rising trend for shareholders to pressure banks not to provide large firms with financial bailouts simply based on who they are. For more detail on this, the WSJ article is the best place to go.

What I want to get to is a Nikkei report that JAL has decided to speed up some of its restructuring plans. It will apparently cut 4,300 jobs by the end of fiscal 2008, a year earlier than originally planned. It will also begin asking flight attendants to “retire” during this fiscal year, is looking to cut retirement benefits by 10%, and is considering cutting its entire workforce by 10% by the end of fiscal 2009.

When I saw all this, I figured at least one of their major banks must have been interested in the debt-for-equity swap. The Nikkei article finishes with the vague line, “As it scrambles to improve profitability, the airline hopes that such steps will curry favor with financial institutions and other lenders.”

We’re still wondering which financial institutions are going to risk raising the ire of shareholders. JAL’s largest lender, the state-owned Development Bank of Japan doesn’t have nearly as much to worry about as Mizuho Corporate, Mitsubishi UFJ and Mitsui Sumitomo (JAL’s other big lenders) do.

Just as pressing is whether or not the interested parties are going to demand deeper restructuring commitments from JAL.

Morgan Stanley to buy 13 ANA-owned hotels for $2.4 billion; ANA still in debt

In late March, we learned that in 2006, land prices across Japan had risen for the first time in 16 years. One factor behind that rise has been the massive influx of foreign money; at the close of 2005 there were 14 REITs (Real Estate Investment Trusts) operating in Japan, and at the end of 2006, that figure had shot up to 26. At the forefront of this trend have been Morgan Stanley, Goldman Sachs, Nippon Building Fund, and private equity fund Lone Star.

In 2006, Morgan Stanley alone snapped up $8 billion worth of Japanese real estate. Today, Morgan Stanley announced that it had agreed to buy 13 hotels owned by All Nippon Airways for 281.3 billion yen, or $2.4 billion.

That’s a big day of spending. We should keep in mind, however, that the Tokyo Stock Exchange REIT Index has climbed 39% in the year to today.

Sounds great: The hotels were valued at 150 billion yen on ANA’s books, ANA is 783 billion yen in debt, and the company is desperately trying to sell off assets to buy new planes. So, it might be fun to visit these hotels, but you might think twice about flying ANA to get there, at least for now.

JAL and ANA cooperating; Hell still hot

Japan Air Lines and All Nippon Airways do not have a history of working together, but they finally done something for the good of the customer by launching a joint electronic ticketing service for international flights. This means that one could take a domestic flight from Kochi (or some other local airport) on ANA to Narita and change to a JAL flight without a paper ticket. Good news…

…However, JTB says that there will be fewer Japanese traveling internationally during this year’s late April/early May Golden Week holidays, which means there won’t be quite as many people to put that new ticketing system to use. Last year, the holidays fell in such a way that it was easy to arrange a full week off. This year, however, two working days are stuck in the middle of the holidays, making it a little more difficult for salarymen to get that precious time off. This should, however, be interpreted as good news for domestic tourism.

Threat of Japan Air Lines strike passes

On Monday, there was a threat of a strike from four of Japan Air Lines’ eight labor unions. That threat passed without incident as JAL announced it had reached a settlement with its unions in the early hours of Tuesday morning. No details of the agreement have been released yet, but we will have them as soon as they are.

Plan to fly Japan Air Lines tomorrow?

Unless something happens very quickly, Japan Air Lines employees could be on strike tomorrow, and up to 17,000 domestic travelers could be stranded. The one-day strike would have no effect on international routes.

Four of JAL’s eight labor unions are rumored to be involved with the strike, which came about when management refused to raise the base pay for its flight attendants and non-captain cockpit crew members. Instead, JAL offered a bonus of two months salary and 80,000 yen.

Airline unions in Japan frequently use the threat of strikes as a bargaining tool. Last November, JAL’s pilots threatened a walkout but did not follow through with it.

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