Finance Ministry, Bank Said to Favor JAL Bankruptcy

Jan. 9 (Bloomberg) -- The Japanese Ministry of Finance and the state-owned Development Bank of Japan support bankruptcy for Japan Airlines Corp., two people familiar with the matter said.

A court-led restructuring is favored over negotiations with creditors, said the people, who declined to be identified because they aren’t authorized to release the information. The government will decide between the options next week, said one of the people.

A JAL spokeswoman, Sze Hunn Yap, declined to comment on whether the Tokyo-based carrier would apply for bankruptcy. Calls to the media relations office of the Ministry of Finance, which oversees Development Bank, went unanswered outside regular office hours.

Finance Minister Naoto Kan declined yesterday to rule out bankruptcy. “We need to carefully consider how to rehabilitate JAL, including those issues,” Kan said when asked about the possible negative consequences of JAL seeking court protection.

Japan Air is seeking new investors and turnaround funds as it works to restructure after posting three losses in four years. Further talks on JAL’s future will take place as soon as Jan. 12, Transport Minister Seiji Maehara told reporters yesterday in Tokyo after meeting with Prime Minister Yukio Hatoyama. Jan. 11 is a national holiday in Japan.

The government has decided that the carrier should pursue a legal bankruptcy, Nikkei said yesterday, without citing anyone. Plans for JAL will be completed as early as Jan. 12, and the carrier may file a bankruptcy petition on Jan. 19, the Nikkei said.

Shares Slump

JAL slumped 12 percent yesterday, the third straight decline, to 67 yen in Tokyo trading. The yield on JAL’s 10 billion yen in 2.94 percent notes due in 2013 jumped to a record 52.2 percent yesterday from 15.8 percent on Jan. 4, according to Japan Securities Dealers Association prices on Bloomberg. The notes yielded about 9 percent a year ago.

Delta Air Lines Inc. and American Airlines have made competing bids to buy a stake in JAL to gain access to its routes in Japan and China. Delta wants to entice JAL into the SkyTeam alliance from American’s Oneworld.

AMR Corp.’s American and partner TPG have offered to invest $1.1 billion in JAL. They are considering boosting the bid by several hundred million dollars to keep the Asian carrier in Oneworld, a person familiar with the matter said this week.

Delta and SkyTeam have proposed a $1 billion package, including buying an equity stake and financing.

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