Shares Plunge 81% as Japan Airlines Forges Ahead With Restructuring

(January 13, 2010) — After securing the required approval of two-thirds of its active employees and retirees to cut payouts, Japan Airlines is going along with the plan to start slashing benefits. JAL shares plummeted 81% Wednesday.

According to the Nikkei financial daily, JAL, Asia’s largest carrier, faces a nearly $2.6 billion pension fund deficit and a $16 billion debt.

Early this week, 67% of JAL retirees, or 5,991 people, approved the company’s plan to cut benefits, agreeing to the requested 30% cut in pension payouts. Employees will have their benefits cut by 50%. JAL’s pension-related obligations account for more than a quarter of its billions in interest-bearing debt.

Additionally, the company will likely slash about 13,000 jobs as well as dozens of unprofitable routes, likely filing for bankruptcy as early as next week. The government-backed Enterprise Turnaround Initiative Corp. of Japan is finalizing its support for the airline, Nikkei reported.

This restructuring comes at the heels of a new CEO coming on board. Kazuo Inamori, Japan’s 28th richest man and the founder of Japanese electronics maker Kyocera Corp, agreed to serve as head of the carrier.

The airline has been bailed out by the state four times. Amid the rocky changes, U.S. carriers Delta Air Lines and American Airlines are competing for a stake in the struggling Japanese carrier, still considered a “powerful regional player,” reports the New York Times’ DealBook.  For example, American Airlines is offering incentives to maintain a partnership with JAL, guaranteeing JAL’s revenue by $300 million over the next three years. Delta is ramping up its effort to form an alliance, offering JAL $500 million in equity and other incentives that add up to about $1 billion, reports the Wall Street Journal.