Cash-strapped Japan Airlines has managed to secure 100 billion yen in emergency bridge loans to keep it afloat for the time being, but prospects remain uncertain for a solution to the key issue of its corporate pension liabilities, making it inevitable that the national flag carrier will walk a precarious tightrope as it tries to rebuild itself.

As a prerequisite for aid to the struggling airline, the government and financial institutions want to cut pension benefits for its retired and current employees in return for it receiving public rescue funds.

The Development Bank of Japan has agreed to provide the stopgap loans because it has become less likely that they will become unrecoverable as the government has decided to write legislation guaranteeing the loans ex post facto.

At a conference of creditors held last week in line with the so-called alternative dispute resolution scheme, the financial institutions involved agreed to a moratorium on loan repayments, turning off the taps on the outflow of funds from JAL. Due to this development and the secured bridge loans, the airline will be able to avoid the worst-case scenario, concerned sources said.

But it remains unclear whether JAL will be able to secure stable financing. If the state-backed Enterprise Turnaround Initiative Corporation of Japan (ETIC) agrees to JAL's request for assistance, the airline's fund management will stabilize because it can receive public funds via ETIC, observers said.

But they said that if ETIC's decision is delayed until after January, when it originally was scheduled to be made due to the time taken evaluating JAL's assets, the company will fall into a financial mess again.

As for the cuts in corporate pension benefits demanded by the financial institutions and the government as a prerequisite for assistance, the airline held the first briefing session for its retirees Monday, at which it tried to persuade them of the necessity of cutting their pensions.

JAL wants to obtain agreement on pension cuts from its employees and retirees before the end of January. But depending on the result of a survey of their views on the matter to be conducted shortly, there is a possibility that JAL management will be forced to revise its pension cut plan calling for a 53 per cent cut for current employees and a reduction of about 30 per cent for the retirees. Thus, the situation is still in flux.

Even if approval is obtained for pension cuts, it is possible that many retirees will exercise their existing right to seek lump-sum payments based on their wage levels. If this happens, it is possible that JAL will be judged not to be serious about dealing with the pension cut issue, observers said.

The market has not altered its cautious stance toward JAL reconstruction. The skid in JAL's stock price has not been halted. Yasuhiro Matsumoto, an analyst of Shinsei Securities Co., said, "Concern is mounting in the market that JAL will face liquidation."

JAL President Haruka Nishimatsu told reporters Monday (November 23): "(If approval is not obtained on pension cuts) doubts will arise over whether we'll be able to survive because of such possibilities as liquidation."

Construction and transport minister Seiji Maehara did not rule out the possibility of liquidation. Speaking at a House of Representatives committee session on November 18, Maehara said, "I've never said liquidation wouldn't happen."
His statement has increased rather than lessened doubt in the market about JAL's reconstruction.

JAL has managed to secure bridge loans, but faces a host of issues that need to be resolved. "The situation doesn't allow it to feel at ease," a source related to the matter said.