JAL is not only the flagship carrier for Japan; it is one of the largest airlines in the world. JAL ranks among the top ten in the industry both in passengers and revenue.

JAL recently warned that its loss for the year could be $13.3 billion. There have been hopes of a bailout for the airline from the Japanese government for several weeks. Both AMR (NYSE:AMR) and Delta (NYSE:DAL) have offered to put over $1 billion into JAL. Sources say that there will be no investment from a US carrier until JAL’s management has been replaced.

JAL’s lenders, several of Japan’s biggest banks, have decided to give up on the carrier and push it into bankruptcy.  The government’s Development Bank of Japan also says it will walk away from putting more money into JAL as it is now structured.

JAL’s collapse is a cautionary tale for an industry in which Chapter 11 is a fairly normal way of shedding debt and reducing work force levels. JAL has been burdened with a large debt load as is true of several large US carriers.

The major US airlines reported last week that their traffic has stabilized and is no longer rapidly falling. But, jet fuel prices have been steadily rising and the anemic economy will make it hard for airlines to raise ticket prices and keep current passenger loads at the same time.

US carriers are facing a race between oil prices and debt service. If crude rises above $90 and stays there, high jet fuel prices will decimate margins. The Chapter 11 filings of large global carriers may not end with JAL

Douglas A. McIntyre

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