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Japan Airlines bankruptcy filing expected Tuesday

Japan Airlines bankruptcy filing expected Tuesday

TOKYO – Japan Airlines is set to file for bankruptcy Tuesday, ending months-long speculation about its fate and writing Japanese corporate history as one of its biggest-ever failures.

The country’s flagship carrier, called JAL for short, will likely convene a special board meeting in the afternoon before filing for protection from creditors under the Corporate Rehabilitation Law — Japan’s version of Chapter 11, according to Kyodo News agency. The filing will be followed by a restructuring plan crafted by a government-backed corporate turnaround body.

President Haruka Nishimatsu is expected to resign. Leadership of the company will be handed over to Kazuo Inamori, a buddhist monk and founder of electronic components behemoth Kyocera Corp. and Japan’s No. 2 mobile carrier KDDI Corp.

The government will also offer assurances that it backs the company’s rehabilitation and intends to keep JAL flying.

“The government wants to continue to support JAL to ensure its continued stable and safe operations,” said transport minister Seiji Maehara hours before the expected filing.

The day’s events culminate a process that began in October when JAL — saddled with debts of 1.5 trillion yen ($16.5 billion) — first turned to the Enterprise Turnaround Initiative Corp. for help. Under a prepackaged restructuring strategy, it will embark on a massive overhaul to shed the fat and inefficiency that hobbled Asia’s biggest airline.

“As an airline product, it’s always had a high reputation,” said Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, a Sydney-based aviation market research firm. “But from a cost base, it’s generally been something of an industry joke.”

The plan calls for about 15,600 job cuts, or a third of JAL’s work force, by March 2013 and will require the airline to halve the number of its subsidiaries which span everything from hotels to credit cards, according to Kyodo. The Enterprise Turnaround Initiative Corp. will invest about 300 billion yen ($3.3 billion) in the carrier, and JAL’s main lenders have been asked to waive about 350 billion yen in liabilities.

What may take longer to emerge is the winner of a fierce tug-of-war between Delta Air Lines and American Airlines for a slice of JAL’s business. Despite its woes, the airline’s access to Asia is a mouthwatering prize for foreign airlines.

Investors Tuesday braced for a seemingly inevitable removal of the airline’s shares from the Tokyo Stock Exchange.

The issue, which has lost more than 90 percent of its value over the last week, tumbled another 20 percent Tuesday to 4 yen. The company is now essentially worthless, with a market capitalization of about 10.9 billion yen ($120 million) — less than the price of one Boeing 787 jet.

It’s a humbling outcome for Japan’s once-proud flagship carrier which was founded in 1951 and spent its early years owned by the state. Along with Japan’s economy, it expanded quickly in the decades after World War II and was privatized in 1987.

But it soon became the victim of its own ambitions.

When Japan’s property and stock bubble of the 1980s burst, risky investments in foreign resorts and hotels undermined its bottom line. JAL also shouldered growing pension and payroll costs, as well as a big network of unprofitable domestic routes it was politically obligated to maintain.

More recently, JAL’s passenger traffic has slowed amid the global economic downturn, swine flu fears, competition from Japanese rival All Nippon Airways Co. and a spate of safety lapses that tarnished its image. It lost 131.2 billion yen ($1.4 billion) in the six months through September.

Its four government bailouts since 2001 only exacerbated JAL’s problems, officials now say. Maehara last week blamed previous administrations, controlled by the opposition Liberal Democrats, for propping up an ailing JAL for years without reforming the company.

Passengers seemed to agree as much.

“I guess they did not work in earnest and so fell into this situation,” said Isao Sasaki, 72, who waited in line Tuesday at a JAL check-in counter at Tokyo’s Haneda Airport. “Weren’t they spoiled as they always had protection from the government?”

Delta Air Lines — the world’s biggest airline operator — and rival American Airlines are courting JAL with massive financial offers as the U.S. carriers seek to expand their Asian networks.

Delta and its SkyTeam partners have offered $1 billion, including $500 million in cash to lure JAL away from American’s oneworld alliance. American Airlines and its partners say they are ready to inject $1.4 billion cash into the Japanese airline, up from a previous $1.1 billion offer.

As of March, JAL’s fleet consisted of 279 aircraft, mainly from Boeing Co. It served 220 airports in 35 countries and territories, including 59 domestic airports.

It carried 11.7 million international passengers last fiscal year and 41.2 million travelers domestically. International traffic was down 12.4 percent from the previous year, while the domestic passenger count fell 1.8 percent.

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Ratings of Japan PM, ruling party fall on scandal

Ratings of Japan PM, ruling party fallonscandal

TOKYO (Reuters) – Voter support for Japanese Prime Minister Yukio Hatoyama and his party has fallen due to a funding scandal linked to his powerful No.2 party executive, two media surveys showed on Monday, raising the risk of a policy stalemate.

Opposition parties have threatened to boycott parliamentary debate on an extra budget to prop up the economy if the ruling Democratic Party dodges questions about the scandal ensnaring its secretary-general, Ichiro Ozawa.

The scandal could also threaten the Democrats’ chances of gaining a majority in a mid-year election for parliament’s upper house that they need to win to pass legislation smoothly.

Support for Hatoyama’s cabinet, which had already slid since he took office four months ago due to voters’ doubts about his leadership, fell to 42 percent in an Asahi newspaper poll from 48 the previous month. That was down from initial highs above 70 percent after Hatoyama took power last September.

A Yomiuri newspaper survey showed a steeper drop to 45 percent from 56 percent earlier this month.

Prosecutors have arrested three current and former Ozawa aides. Japanese media say they are probing the source of funds improperly reported by Ozawa’s funding group, and suspect construction firms seeking government contracts were involved.

Hatoyama said on Saturday he would back Ozawa’s decision to stay on in his key post and urged him to fight on.

That stance has drawn fire from Japanese media and the opposition as suggesting bias against the prosecutors, but Kyodo news agency said the premier repeated his position on Monday.

PRESSURE TO RESIGN

Equally disturbing for the government, the percentage of those planning to vote for the ruling party in the upper house election fell to 28 percent from 35 percent in the Yomiuri poll.

That compared to 21 percent who said they would opt for the opposition Liberal Democratic Party (LDP), little changed.

But 70 percent of respondents to the Yomiuri survey said Ozawa, who stepped down as party leader last year over a separate scandal, should resign from his No. 2 post.

“We must accept the figures from the polls sincerely,” Chief Cabinet Secretary Hirofumi Hirano told a news conference.

“Parliament opens today and our mission is to enact the extra budget as quickly as possible … and by so doing, realise policies that put priority on the people’s livelihoods.”

The Democrats and their allies could ignore any opposition boycott but doing so could further erode voter support.

The Democrats swept to power in an August election that ended more than half a century of nearly unbroken LDP rule, pledging to refocus spending on consumers and cut wasteful spending to help rein in Japan’s ballooning public debt.

But they need to win an outright majority in parliament’s less powerful upper chamber to break free of two small allies who often disagree on policy and ensure smooth passage of laws.

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Dollar falls to 14-year low vs yen on US outlook

Japan Dollar Asian World Markets

A Tokyo money dealer reacts as the U.S. dollar is traded at between 86.43 yen and 86.48 yen on the Tokyo foreign exchange in Tokyo, Japan, Thursday, Nov. 26, 2009. The dollar has tumbled to 14-year low against the Japanese yen after traders reacted to indications that U.S. interest rates will remain low and that Federal Reserve isn’t overly concerned about the dollar’s slide.

Dollar falls to 14-year low vs yen on US outlook

TOKYO – The dollar tumbled to 14-year low against the yen Thursday, adding to pressure on Japan‘s beleaguered exporters, amid indications U.S. interest rates will remain low and the Federal Reserve isn’t overly concerned about the dollar’s slide.

The dollar sank to 86.27 yen in Tokyo trading, the lowest since July 1995, and sending the Nikkei 225 stock average down by 0.6 percent to 9,383.24. Dealers were not ruling out further weakness in the currency.

Analysts said some investors were selling the dollar to buy gold, which surged to a record Thursday, and other commodities.

A strong yen is bad for Japan’s economy because it erodes overseas income for the country’s big auto and electronics exporters.

Toshiba Corp. President Norio Sasaki said the yen’s appreciation “could have a severe impact on our businesses.”

“I would like governments to coordinate in a bid to halt a surge in the yen,” Sasaki told public broadcaster NHK.

Toshiba, which makes everything from nuclear power plants to household electronics, is forecasting a $550 million loss for the fiscal year through March.

The dollar’s latest plunge also adds to concerns over China’s tight currency controls, which its trading partners say are giving it an unfair advantage in export markets.

While the yen, euro and Australian dollar are bearing the brunt of the dollar’s weakness, the Chinese yuan remains loosely pegged to the dollar — a level that American critics say is artificially low. Beijing has been cool to suggestions it ease its currency practices to allow the yuan to strengthen.

Finance Minister Hirohisa Fujii said Japan “will take appropriate steps if foreign exchange rates move abnormally.” But investors drove up the yen anyway, unconvinced that Tokyo — which hasn’t intervened in the currency markets since 2004 — will step in to sell the yen to try to weaken it.

“The perception is that Japanese authorities aren’t overly worried about the dollar and won’t intervene,” said Koji Fukaya, senior currency strategist with Deutsche Securities in Tokyo.

The dollar has also been falling against the 16-nation euro, which rose to a 15-month high Wednesday. It eased to $1.5103 on Thursday from $1.5132 late Wednesday.

The renewed slump in the dollar was driven largely by the publication Tuesday of the minutes to the Fed’s last rate-setting meeting on Nov. 3-4.

The Fed said at the time that it plans to keep interest rates at “exceptionally low levels” for an “extended period” — currently the Fed funds rate stands at a range between zero and 0.25 percent — and that the fall in the dollar had been “orderly.”

Currency traders seized on the reference to the dollar as the Fed is usually wary of talking about changes in currency values.

With the Fed likely to keep rates low, investors are looking to commodities and riskier assets for higher returns, said Masafumi Yamamato, chief foreign exchange strategist at Barclays Capital.

Japan seems to have adopted a policy of “benign neglect” regarding exchange rates, he said.

But with the government’s alarm over deflation, or falling prices, in the economy, policymakers may become more proactive, Yamamoto said. A strong dollar tends to fuel deflation by reducing the price of imports and raw materials. Falling prices can cut into corporate profits and could lead to lower wages.

“They must change if they want to stop deflation and they want to reduce the negative consequences on the Japanese economy through the currency market,” he said. “If there is no change, the dollar-yen will fall toward 85 yen.”

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