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JAL Turns To Merrill Lynch

Troubled JAL hires Merrill Lynch

Sep 21, 2009

Japan Airlines Corp., Asia’s most indebted carrier, hired Merrill Lynch Japan Securities Co. to advise on its search for partners and investments, two people familiar with the situation said.

Japan Airlines appointed Bank of America Corp.’s Merrill Lynch to evaluate the carrier’s value and select a partner who can help replenish its capital, said the people, who asked not to be identified because they aren’t authorized to discuss the deal publicly.

Overseas carriers including American Airlines, Delta Air Lines Inc. and Air France-KLM are considering investments in Japan Air, also known as JAL. Delta and American, a unit of AMR Corp., are both in talks to invest in Japan Air, Hirotaka Yamauchi, a member of the government panel formed to help restructure the airline, said on Sept. 15.

“JAL can’t revitalize on its own; it needs a drastic fix with help from overseas,” said Makoto Haga, chief strategist at Tokyo-based securities firm Monex Group Inc. “Hiring an adviser means the deal has taken a step forward, which is positive for stakeholders.”

American, the world’s second-largest airline, has hired an investment bank to advise it on buying a stake, two people familiar with the plan said Sept. 18. The U.S. carrier partners with Japan Air in the Oneworld alliance and might lead other members of the group in an investment in the Japanese company.

Delta and Air France-KLM are partners in the rival SkyTeam alliance.

Government Help

Japan Air’s Tokyo-based spokeswoman Sze Hunn Yap was not available to comment. Merrill Lynch’s Tokyo-based spokesman Tsukasa Noda declined to comment.

Japan Airlines may receive more government-backed loans as it seeks alliance partners, said Shizuka Kamei, the nation’s newly appointed financial minister.

“It’s a big national project to rehabilitate the airline properly,” Kamei said in an interview yesterday. “We will back up JAL if the company makes all efforts for its survival.”

State-owned Development Bank of Japan, which has already made 235 billion yen ($2.6 billion) in loans to the Tokyo-based carrier, could provide more funds, said Kamei, 72, named to head the ministry Sept. 16 by Japan’s new government.

Development Bank and lenders including Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. provided the airline with a 100 billion yen loan in June.

Government support may further encourage overseas carriers to invest in Japan Air.

Previous Bailouts

After three government bailouts since 2001, JAL predicts a loss of 63 billion yen this year. It may have difficulty meeting that figure as the median forecast of 12 analyst estimates compiled by Bloomberg is for an 80 billion yen loss.

Japan Air’s debt rating may be downgraded from the current B+ by Standard & Poor’s, the rating company said in a statement yesterday.

Japan Air, which had 47,526 employees at the end of March, plans to cut 6,800 jobs by the end of 2011, President Haruka Nishimatsu said earlier this week. The carrier’s payroll compares with 33,045 at rival All Nippon Airways Co., Asia’s second-largest carrier by sales.

Globally, the airline industry may lose $11 billion this year, according to the International Air Transport Association. JAL had a 25 percent drop in overseas passengers in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003.

Troubled JAL hires Merrill Lynch
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