TOKYO - Japan Airlines filed for one of the country's largest bankruptcies ever Tuesday, entering a restructuring that will shrink Asia's top carrier by thousands of jobs and reduce its its presence around the world.
Staggering under a US$25.6-billion debt mountain, the carrier applied for protection from creditors under the Corporate Rehabilitation Law - Japan's version of Chapter 11 - with the Tokyo District Court.
Japan's flagship airline will slash nearly 16,000 jobs, reduce pensions for retired staff, cut routes and shift to more fuel-efficient aircraft as part of its restructuring.
Some $10 billion of government cash will keep JAL's planes in the air during the reorganization. Lenders will forgive $8 billion in debt, and JAL shares will be removed from the Tokyo Stock Exchange on Feb. 20, wiping out investors.
There was no word on the outcome of a fierce tug-of-war between Delta Air Lines and American Airlines for a slice of JAL's business. Despite its woes, the airline's access to Asia is a mouthwatering prize for foreign airlines.
A state-backed turnaround agency pledged 900 billion yen ($10 billion) in financial support for JAL - 600 billion yen in credit lines and a 300 billion yen cash infusion. The bankruptcy is the fourth-largest in Japan, according to figures from Teikoku Databank, which tracks corporate failures.
"This is not the end of JAL," transport minister Seiji Maehara told reporters. "Today is the beginning of a process to keep JAL alive."
JAL President Haruka Nishimatsu resigned, bowing deeply as he apologized for the company's troubles. Kazuo Inamori, a Buddhist monk and founder of Kyocera Corp. and Japan's No. 2 mobile carrier KDDI Corp., has been tapped as its next leader.
"This is our last chance," Nishimatsu said. "I believe we can be reborn as an airline that can represent Japan again."
JAL said flights will continue uninterrupted and that frequent fliers would not lose their miles. Tokyo asked foreign governments for co-operation to keep JAL flying around the world.
The day's events culminate a process that began in October when JAL - saddled with debts of 2.32 trillion yen ($25.6 billion) - first turned to the Enterprise Turnaround Initiative Corp. of Japan for help. Under the prepackaged reorganization, it will embark on a massive overhaul to shed the fat and inefficiency that hobbled its finances.
Maehara said the turnaround would involve 15,661 job cuts - a third of JAL's payroll - by March 2013.
The carrier will retire all 37 of its Boeing 747 jumbo aircraft and 16 MD-90s, which will be replaced by 50 small and regional jets. As of March, JAL's fleet consisted of 279 aircraft, mainly from Boeing Co. It served 220 airports in 35 countries and territories, including 59 domestic airports.
JAL shares, which have lost more than 90 per cent of their value over the last week, tumbled another 40 per cent Tuesday to 3 yen before finishing flat at 5 yen. The company is now essentially worthless, with a market capitalization of about 13.7 billion yen ($150 million) - the price of one Boeing 787 jet.
Nevertheless, American and Delta have continued to battle over JAL.
Delta and its SkyTeam partners have offered $1 billion, including $500 million in cash to lure JAL away from American's oneworld alliance. American Airlines and its partners say they would inject $1.4 billion cash into the Japanese airline.
"Delta and SkyTeam fully support Japan airlines and stand ready to provide assistance and support in any way possible," the Atlanta-based airline said in a statement following JAL's bankruptcy filing.
Maehara declined to comment on which U.S. carrier the government preferred and said it is "not in a position to force any partners on JAL."
The bankruptcy represents a humbling outcome for Japan's once-proud flagship carrier which was founded in 1951 and came to symbolize the country's rapid economic growth. The state-owned airline expanded quickly in the decades after the Second World War and was privatized in 1987.
But it soon became the victim of its own ambitions.
When Japan's property and stock bubble of the 1980s burst, risky investments in foreign resorts and hotels undermined its bottom line. JAL also shouldered growing pension and payroll costs, as well as a network of unprofitable domestic routes it was politically obligated to maintain.
More recently, JAL's passenger traffic has slowed amid the global economic downturn, swine flu fears, competition from Japanese rival All Nippon Airways Co. and a spate of safety lapses that tarnished its image. It lost 131.2 billion yen ($1.4 billion) in the six months through September.
Geoffrey Tudor, a principal analyst at Japan Aviation Management Research and former JAL employee, said the airline needs to be leaner and meaner.
"It wasn't commercially brutal enough in dealing with the facts of economic life," said Tudor, who spent 38 years at the Japanese carrier and now watches its collapse with a mixture of sadness and frustration.
Its four government bailouts since 2001 only exacerbated JAL's problems, officials now say.
Passengers seemed to agree as much.
"I guess they did not work in earnest and so fell into this situation," said Isao Sasaki, 72, who waited in line Tuesday at a JAL check-in counter at Tokyo's Haneda Airport. "Weren't they spoiled as they always had protection from the government?"