Japan Airlines to Start Discount Carrier as Part of a Plan to Turn Around

Japan Airlines Corp., which in January filed for bankruptcy, will set up a low-fare carrier as part of a turnaround plan, Transport Minister Seiji Maehara said.

JAL, as the airline is also known, will file its restructuring proposals to the Tokyo District Court later today, Maehara said at a briefing in Tokyo. He didn’t elaborate.

“If we don’t create this new company inside the group, it will become more fragile,” he said, referring to the low-fare airline.

JAL is slashing staff, retiring planes and cutting flights. The airline last month reported its first profitable quarter in almost two years and promised to further reduce personnel, fuel and other costs as part of the turnaround.

The airline plans to cut its operating costs by 374 billion yen ($4.4 billion) to 1.29 trillion yen this fiscal year, compared with the 1.67 trillion yen it has estimated for the business year ended March 31, according to a plan released in January. The company hasn’t announced annual earnings for last fiscal year.

JAL’s four biggest lenders at the end of March 2009 were Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group, Mizuho Financial Group Inc., and the Development Bank of Japan. They were owed a total of 429 billion yen.

The Enterprise Turnaround Initiative Corp. of Japan has agreed to invest at least 300 billion yen into the carrier.

To contact the reporter on this story: Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

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