Japan Airlines (JAL), Asia's biggest air carrier and once one of the jewels in the crown of Japan's corporate world, has filed for court protection with estimated liabilities of 2.32 trillion yen (£15.6bn).
The bankruptcy – one of the largest in Japan's postwar history – is expected to kick-start a painful three-year restructuring process, with up to 15,000 sackings, billions in debt write-offs and the loss of dozens of unprofitable routes.
To prevent the former state-owned carrier's total collapse, which would have a calamitous impact on its 13,000 business partners, it will need up to $7bn (£4.2bn) in debt waivers and billions more in credit, say analysts.
Pledging that the airline would continue flying, Prime Minister Yukio Hatoyama called on JAL's employees to swing behind its restructuring, which will be supervised by the state-backed Enterprise Initiative Turnaround Corporation.
"What's most important is that all people who are working [for JAL] devote all their energies toward its restructuring... On that premise, the government will support their efforts," he said.
JAL's president, Haruka Nishimatsu, who opposed the bankruptcy, was the first from the airline's board to resign yesterday. Local media report that his replacement is Kazuo Inamori, 77, the founder of manufacturing giant Kyocera Corp and one of Japan's most revered entrepreneurs.
Admitting that he was "old" and found full-time work difficult, Mr Inamori, who is a fully ordained Buddhist monk, promised that he would lend his expertise for free. "I don't know anything about the transportation industry, but I would like to make my best contribution," he said.
Mr Inamori inherits one of Japan's most troubled companies. Founded in 1951, JAL was privatised in 1987 and became the world's sixth-largest carrier. But the firm has been unprofitable for years, shackled by costly domestic routes, bloated management and the hangover of huge spending on hotels and resorts during the 1980s bubble economy.
Increasingly losing out to its once lowly domestic rival All Nippon Airways, JAL's fall accelerated after the global financial crisis began in 2008. A series of health scares, including influenza, kept millions of potential passengers at home. JAL's shares yesterday fell as low as ¥3 and its market value hit just $150m – less than the cost of a single jetliner – before the bankruptcy announcement. The shares will now be delisted on 20 February, leaving the airline's many private investors holding worthless paper.
JAL's ¥2.3 trillion liabilities make it Japan's largest non-financial-sector bankruptcy since the Second World War. The transport minister, Seiji Maehara, admitted yesterday that the company's sheer size had temporarily saved it from liquidation.
But Mr Maehara's centre-left Democrat government has ordered a brutal turnaround plan, including cutting about a third of JAL's workforce and scrapping politically important but unprofitable domestic routes. Shareholders will be wiped out and lenders will be asked to waive up to $8bn in debt. At least two US airlines – American and Delta – are reportedly negotiating for a slice of JAL's international business.
Rescued four times from bankruptcy in the last decade, JAL is now facing the moment of truth. The Democrats' tough medicine is being seen as another sign that the days when some companies in Japan were considered too big to fail are now over.Reuse content