JAL Shares Slump Amid Doubts, Downgrades

Shares of struggling carrier Japan Airlines Corp. touched a new all-time low Friday as investors spooked by the state of its balance sheet shrugged aside government assurances that a state-backed restructuring plan is coming together smoothly.

Also Friday, ratings firms Standard & Poor’s downgraded the former national flag carrier further into junk status, citing concerns that the revamp could include broad steps such as debt-for-equity swaps or debt forgiveness. It added that a bankruptcy filing was less likely but possible. Also Friday, Moody’s Investors Service lowered its rating of a major unit.

JAL declined to comment on Friday’s market moves and said it is working on the restructuring plan.

Shares in JAL, Japan’s biggest airline by revenue, closed Friday down 11% at 101 yen ($1.11), less than half their value this time last year, after hitting an all-time low of 100 yen earlier in the day. Friday’s slide leaves JAL’s market value at just 276 billion yen, or $3.05 billion.

While the government is widely expected to keep JAL flying, Friday’s slump highlights the growing alarm among investors at the scale of funds that analysts estimate will be needed to shore up its balance sheet. It also represents concerns that Japan’s new government will demand more dramatic moves than previous administrations, which mostly extended loans to the carrier.

Transport Minister Seiji Maehara on Friday said work on the restructuring plan is making good progress and a government task force and the company are on track to announce a draft by the end of this month. He declined to comment on whether the share plunge might affect the drafting of plans to overhaul JAL.

“There is no change at all in our policy that the government will back up” the company, Mr. Maehara said. He added that he doesn’t know yet if any routes will be scrapped under the restructuring plan.

Analysts estimate JAL may want up to 150 billion yen in new funds in the second half of the fiscal year ending in March. This is larger than 100 billion yen that Takahiko Kishi, an analyst at Mizuho Investors Securities, initially estimated for the second half.

But “as the business is deteriorating, 100 billion yen probably won’t be enough,” he said.

Concerns about the JAL overhaul have also contributed to a decline in shares of banks that might be hit by more drastic JAL turnaround moves. Japanese banks have also been hurt by other government proposals and Japan’s continued weak economy.

JAL’s plight comes after the company slumped to its largest-ever quarterly net loss of 99 billion yen in the April-June quarter, from a 3.41 billion yen net loss in the same period a year earlier. Like most airlines, JAL has been buffeted by a sharp drop in travel demand brought on by the global economic downturn, and now expects a net loss of 63 billion yen for this fiscal year through March.

Alongside the restructuring plan, JAL has entered separate tie-up talks with Delta Air Lines Inc. of the U.S. and American Airlines parent AMR Corp. But JAL likely won’t conclude alliance talks with the two U.S. airlines until a government-appoint ed task force finishes a review of its ailing financial structure, people familiar with the matter said earlier this month.

Standard & Poor’s lowered its long-term corporate credit rating on JAL by two notches to B- from B+.

Also Friday, Moody’s downgraded the long-term debt rating and issuer rating of Japan Airlines International Co. to B1 from Ba3

JAL had laid out a restructuring plan on its own, including scrapping 50 international and domestic routes and 6,800 job cuts. But Mr. Maehara said last month that he was skeptical about its feasibility. A special task force was subsequently established to advise on the company’s overhaul.