JAPAN AIRLINES TO RECEIVE LOANS UNDER INDUSTRIAL

UNCLAS TOKYO 001455 SENSITIVE SIPDIS STATE FOR EEB/TRA DAS BYERLY, EAP/J STATE PASS USTR FOR M. BEEMAN COMMERCE FOR D. LEE AND E. ALFORD TRANSPORTATION FOR K. GLATZ E.O. 12958: N/A TAGS: EAIR PGOV ELTN ETRD WRTO JA SUBJECT: JAPAN AIRLINES TO RECEIVE LOANS UNDER INDUSTRIAL REVITALIZATION ACT REF: TOKYO 785 SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION ¶1. (U) Summary: Japanese press reports the Development Bank of Japan (DBJ) and three other financial institutions will provide Japan Airlines (JAL) a 100 billion yen (approximately $1 billion) loan facility under a GOJ program to assist companies adversely affected by the economic downturn (ref). If the Ministers of Trade and Industry, Transportation, and Finance agree to JAL's restructuring plan, the GOJ would guarantee 80 percent of the loan and oversee JAL's restructuring. Despite GOJ support, critics suggest this financial assistance represents at best a stopgap measure that will not solve JAL's problems. End summary. ¶2. (U) JAL reported a net loss of 63 billion yen (approximately $630 million) in 2008 and continues to try and cut costs through early retirement programs and adjustments to its pension scheme. Responding to a request from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT),JAL developed a medium-term corporate plan, unveiled in June, in which the airline plans to reform its business model, reduce the size of its fleet, revise its international and domestic routes, change its cargo business model, and reduce maintenance, operations, and sales costs. Critics, however, maintain the airline needs large-scale restructuring and that the GOJ loan falls short of fostering needed change. ¶3. (SBU) Finance Minister Yosano affirmed publicly the Ministry's willingness to assist JAL through the loan scheme, but said "sacrifices" on JAL's part may be required (e.g., labor cuts). The MLIT Minister was reported in the press June 23 as saying that GOJ steps to assist JAL are in line with what other countries, including the United States, are doing to assist businesses. The DBJ and three private sector banks -- Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ, and Sumitomo Mitsui Banking Corporation -- are ironing out the specifics of the assistance package. If approved, it would be the first such loan to qualify under the GOJ assistance program. ¶4. (SBU) Opinions among industry reps are mixed about if and how JAL's financial woes will affect its position going into the upcoming civil aviation negotiations with the U.S. scheduled to be held in Tokyo July 8-10. JAL's predicament may help prod the company in the direction of undertaking necessary restructuring; it may also result in stronger support for an Open Skies agreement with the United States, a U.S. airline representative told econoff June 23. In contrast and while one ANA executive saw the news about JAL as positive in terms of getting desired changes in place, another All Nippon Airlines (ANA) representative speculated that as JAL's financial situation deteriorates, the airline will become increasingly conservative and resist moves that would open the door to greater competition in Japan's civil aviation sector. ZUMWALT