Japan Airlines Files For Bankruptcy

Just when the global economy was showing signs of gradual recovery, Japan Airlines Corp (JAL) has filed for bankruptcy protection. JAL is the largest Asian carrier ( by revenue) and its bankruptcy intensifies the already difficult conditions for the Airlines Industry.

JAL has collected a  debt close to $25 billion and with rising fuel prices and decreasing Air traffic is in not in a position to repay its debts. However, JAL is going to float thanks to state backed support which will help JAL with about $11 billion.

But, like with every bankruptcy protection filing, JAL will go through a massive restructuring and job cuts are expected to be in the range of a few thousands. A re-shuffled management will be entrusted to get the airline back to its feet and justify the bail out. JAL has already been bailed out 4 times by the Government which makes me wonder if JAL’s condition is only due to market forces or there is something fundamentally wrong with how the company is operated.

What is also interesting to note is that,

• JAL companies are expected to receive 730 billion yen worth of debt forgiveness.
• Shareholders will be wiped out and The Tokyo stock exchange would de-list the shares soon.

Now, this is something that pains me to no end. I am not completely equipped with Bankruptcy intricacies but why should shareholders and the creditors suffer when a company fails to maintain profitability. I am not sure if this happens worldwide but I have been reading a lot about this for U.S. based companies and found it disturbing.

If the airline has been constantly given financial support by the government and yet the company fails to ride the tough wave , I wonder if its worth spending billions of dollars in reviving the company. I might be wrong but I feel a capitalist approach seems feasible to me. Why not invite private bids for co-ownership and lead the company into better hands.

Talking about airlines in particular, I cant stop myself talking about the ongoing problems with the national carrier Air India. The government has committed crores of rupees to bail out Air India from its increasing debt. Now, it is clear that the complete industry is going through tough times. But, other carriers are battling it hard and staying afloat. As a matter of fact, Paramount Airways has aggressive expansion plans lined up. Makes me wonder if Being Small is actually a Good Thing

The post has an overdose of questions and hypothesis, because frankly I do not understand the whole dynamics of Bankruptcy Filing and its use by companies. As a matter of fact, I wonder if companies would care less about using Creditors money to good effect, given that there is always a bankruptcy protection as the last resort.

Eagerly await some knowledgeable insights from trak.in readers. I actually thought writing a answer seeking post will be a better idea to get a good perspective on the whole Bankruptcy Issue.

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Author: Ankit Agarwal

Ankit Agarwal is an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion. You can follow him on twitter @ankit_a

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Tagged as: airlines industry, bankruptcy protection, co ownership, debt forgiveness, fuel prices, Global-economy, intricacies, jal, japan airlines, tokyo stock exchange