JAL Files for Bankruptcy

Under a $10 billion turnaround plan, Japan’s national airline JAL has filed for bankruptcy due to its crippling debt of about $25 billion. The airline plans to continue its operations but will be laying off some of its staff, cancel routes that are not making profit and ground some of its older planes. At present, the plan is that JAL will cut its workforce to 36,201 from 51,862, retire its 37 Boeing 747-400s and halt several of its international and domestic routes.

The airline has gone through 4 government bailouts but none succeeded in lifting the airline out of its liabilities.

One other aspect of concern is the pilot training center that JAL has been operating in Napa County Airport since 1971. The training program trains 101 trainee pilots at present. The Napa County Airport houses a main terminal building, maintenance facilities for the planes, flight simulators and 36 airplanes, both single and twin engine ones. At present, the training program entails returning to Japan to fly bigger aircraft upon successful completion of the initial training at Napa.

At this point of time, it is uncertain if the bankruptcy filing will affect the pilot training program, and if so, how. Speculation is rife that at the very least, the number of student pilots will be reduced in future. One thing for certain was that JAL’s training operations over the last one year at Napa has been somewhat declining.

Japan Airlines or JAL was started in 1951 and was worth more than $6 billion as recently as March last year. But in the turnaround exercise, the national carrier will be delisted from stock exchanges thus wiping out shareholders.

US airlines Delta and American airlines, have expressed their individual interest in investing in the troubled Japanese carrier. Both companies have firmly stated that talks will continue despite the bankruptcy filing. Under bankruptcy procedures, JAL will likely receive a cancellation of $8 billion of its debts, $3.8 billion of which are from financial institutions.

The entity leading the turnaround plan is Enterprise Turnaround Initiative Corp. of Japan, a state- affiliated fund. In a move to reassure concerned creditors, Enterprise Turnaround has reiterated that their restructuring plans included continuing to pay vendors and aircraft lessors, as well as maintaining the carrier’s frequent-flyer program.

On Tuesday, JAL also filed for bankruptcy in New York, where it sought protection from a U.S. court from creditors who were trying to collect debts while the Japanese case is pending, according to court documents.