Shares of Japan Airlines Corp tumbled as much as 32 per cent to a record low on Wednesday as expectations grew the struggling carrier will be restructured in bankruptcy court as part of a state bailout. Sources have said that a state-backed turnaround fund is considering using a bankruptcy procedure as part of its revival plan for the carrier,a move that would likely wipe out the value of its shares. A bankruptcy could also complicate talks with American Airlines and Delta Air Lines,which are courting JAL with rival offers of investment to gain access to its network in Asia and closer ties on US-Japan routes. JAL's stock was down 25 per cent at 66 yen at the midday break in Tokyo,after tumbling earlier to a record low of 60 yen. Some 243 million shares have changed hands,seven times the daily average over the past three months and a record since a re-listing in 2002. "Today's slide reflects mounting expectations that JAL is headed for a court-led reorganization," said Takahiko Kishi,an airline analyst at Mizuho Investors Securities. Japan Airlines applied for a bailout in late October from the Enterprise Turnaround Initiative Corp of Japan (ETIC),an organization of turnaround specialists that can draw on state-guaranteed funding to offer financial aid to ailing firms. The ETIC is expected to make a decision on whether to support JAL next month. The ETIC can draw on 1.6 trillion yen ($17.36 billion) in state-guaranteed funding in the current fiscal year to March to make loans and investments,and its budget is expected to total 3 trillion yen in the following year. The ETIC has told JAL's creditors that it was considering a plan under which the airline would apply for court protection under the Corporate Rehabilitation Law,but it has not ruled out a private,out-of-court restructuring,sources have said. Bankruptcy proceedings usually lead to a sharp cut in the payment of sales receivables and other creditor claims. There is a risk JAL would not be able to make payments for fuel,parts and other transactions needed to keep flying. The ETIC plans to keep paying for such transactions if JAL files for bankruptcy,the Nikkei newspaper reported on Wednesday,adding that airport usage fees and insurance policy premiums would also be guaranteed. A spokesman for JAL declined to comment. No one at the ETIC was immediately available for comment. JAL,Asia's largest carrier by revenue,is headed for its fourth annual loss in five years,hit by the global downturn in travel and a bloated cost base that makes it less efficient than domestic rival All Nippon Airways Co. It is also struggling to get the two-thirds approval it needs from employees and retirees for cuts in their pension payouts so that it can get its pension shortfall of about 330 billion yen down to a more manageable size. A Chapter 11-style bankruptcy would allow the ETIC to deal with creditors and various parties in a transparent manner,and could also be used to slice pension benefits if the carrier is unable to secure approval on its own. But some of JAL's creditors remain wary of a court-led workout because it could trigger bigger losses on their loans. The airline's main creditors include the state-owned Development Bank of Japan and Japan's top three private lenders - Mitsubishi UFJ Financial Group,Mizuho Financial Group,and Sumitomo Mitsui Financial Group. JAL was saddled with 1.5 trillion yen in total liabilities as of the end of September. At that level of debt,its bankruptcy would be the 6th biggest ever in Japan,ranking just below the 2001 collapse of retailer Mycal.
