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Tuesday 08th of December 2009
December 7, 2009    

JAL shares up on Government funding rumours

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by Kay Murchie

Struggling Japan Airlines (JAL) saw it shares soar 7% to 107 yen today after speculation that the Japanese Government is looking to guarantee about 700 billion yen ($7.8 billion; £4.7 billion) in loans to the debt-laden airline.

Since 2001, JAL, which is Asia’s largest carrier, has been bailed out four times by the Government.

The airline has been struggling amid the global economic downturn which has led to a slump in demand.

Many airlines have been forced out of business as fewer people are travelling by air.

However, JAL has also been affected by the outbreak of swine flu and the airline posted a net loss of 32.3 billion yen for the July to September period, compared with a 40.1 billion yen profit a year ago.

The airline has been seeking an injection of public funds to strengthen its capital as it restructures under the watchful eye of a state-backed turnaround body.

However, according to Mizuho Investors’ Securities senior analyst Takahiko Kishi, Government guarantees alone would not be enough to help JAL avoid bankruptcy.

“Unless JAL can solve its pension reduction and other internal issues, they are not likely to get a public injection because the government would not be able to win over taxpayers,” he said.

In the meantime, there was further bad news for the airline after it recently emerged that Mitsui & Co broking house had sold all its shares in the carrier, sending its shares to a record low.

Today’s closing of 107 yen was JAL‘s highest closing level since mid-November 11 but the stock is still down by around 50% this year.

Today’s news of the Government funding comes just a few days after American Airlines and private equity firm TPG offered $1.1 billion of investment to JAL.

American Airlines said the offer was “far superior” to the $1 billion lifeline from Delta Air Lines and its Sky Team alliance partners.

American and Delta are both keen to hook up with JAL with a view to acquiring its profitable Asian landing slots.

JAL has said it will make a decision on the bids in the next few weeks.

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