Japan Airlines Lands In Bankruptcy In Japan, US

By Ryan Davis

Law360, New York (January 19, 2010) -- Citing $28 billion in debt, Japan Airlines Corp. has filed for bankruptcy, marking the beginning of what is expected to be a lengthy restructuring aided by $10 billion in credit and capital injections from the Japanese government.

The company filed for protection under Japan's Corporate Rehabilitation Act, which is based on U.S. bankruptcy law, on Tuesday in the Tokyo District Court, Civil Department No. 8. It also filed a Chapter 15 petition Tuesday for recognition of a foreign proceeding in the U.S. Bankruptcy Court for the Southern District of New York.

The company's stock will be delisted Feb. 20, meaning that shareholders will recover nothing in the bankruptcy, according to the filing.

In addition to the $10 billion lifeline from the government, Japan's banks will forgive more than $8 billion in outstanding loans and employees accepted $11 billion in pension cuts, the debtor said.

Japan Airlines said that it planned to cut more than 15,000 jobs out of a current work force of 52,000 and to replace top corporate leaders. CEO Haruka Nishimatsu resigned on Tuesday, and Kazuo Inamori, the founder of Kyocera Corp., was named to take his place.

The company said in its U.S. filing that pending the approval of the restructuring plan by the Japanese court, it required Chapter 15 protection of its assets in the U.S., including aircraft and real estate at John F. Kennedy International Airport in New York and Los Angeles International Airport.

The filing is also necessary to stay unspecified pending litigation in the U.S. that could disrupt the Japanese proceeding, the company said.

Under Japanese restructuring law, the company's bankruptcy trustee must formulate and submit a reorganization plan within one year that is then submitted to the company's creditors, according to Japan Airlines.

The company cited a number of causes of its financial problems, noting that it has struggled to maintain profitability over the years and has undergone multiple out-of-court restructurings.

Low demand for air travel due to fears of terrorism and the swine flu and the ongoing global economic crisis have combined with high pension and wage obligations and rising costs of aircraft maintenance and fuel costs, the company said.

Japan Airlines flew 52 million passengers in 2009, it said.

Both American Airlines Inc. and Delta Air Lines Inc. have been pursuing an alliance with Japan Airlines, and they said last week that the expected bankruptcy filing would not deter them from continuing to work on a deal.

Kirkland & Ellis LLP represents Japan Airlines in the Chapter 15 case.

The case is In re: Japan Airlines Corp., case number 10-10198, in the U.S. Bankruptcy Court for the Southern District of New York.