By Yusuke Miyazawa Jan. 19 (Bloomberg) -- Japan Airlines Corp.’s bonds plunged and the yields rose to records on concern Asia’s biggest carrier by sales will file for bankruptcy as soon as today. “Everyone expected the government to support JAL and now it’s going into bankruptcy,” said Yoshihiro Nakatani, who oversees about 80 billion yen ($882 million) as a senior fund manager at Asahi Life Asset Management Co. in Tokyo. “This could be a turning point for the whole market,” he said, adding he doesn’t own any of JAL’s bonds. A state-affiliated fund will make a final decision on a proposed restructuring for Tokyo-based JAL today after the carrier sought help following a 131 billion yen first-half loss. The plan will probably include the airline, the recipient of four state bailouts since 2001, seeking court protection, according to three people familiar with the matter. The yield on JAL’s 10 billion yen in 2.94 percent notes due 2013 widened to 77 percent yesterday from 70 percent Jan. 15, according to Japan Securities Dealers Association prices on Bloomberg. Its 10 billion yen in 3.1 percent notes due 2018 traded at a 44 percent yield compared with 11 percent a month earlier, JSDA prices show. The carrier will file for bankruptcy at 5 p.m. today at the Tokyo District Court, Dow Jones said, citing people familiar with the situation. The government has repeatedly said that JAL will continue flying. “We must respond firmly to avoid uncertainty” about JAL flights, Chief Cabinet Secretary Hirofumi Hirano told reporters in Tokyo today. Transport Minister Seiji Maehara is also due to meet the press at 6:30 p.m. Delta, American Delta Air Lines Inc. and American Airlines Inc., the world’s largest carriers, have both offered to invest in JAL or a restructured company to access routes in Japan and China. JAL is likely to move to Delta’s SkyTeam from American’s Oneworld as part of its restructuring, according to two people familiar with the situation. JAL shares fell 20 percent, or 1 yen, to 5 yen at the 11 a.m. trading break in Tokyo today. The stock has tumbled 94 percent this month. Sze Hunn Yap, a spokeswoman for the airline, declined to comment on whether it will file for bankruptcy. The carrier has at least 1.5 trillion yen in liabilities and a bankruptcy may be Japan’s sixth-biggest, according to data compiled by Tokyo Shoko Research Ltd. JAL bondholders will likely get 25 percent of face value if the company seeks bankruptcy, according to the median forecast in a Bloomberg News survey of five analysts. Bridge Loans JAL may receive 600 billion yen in bridge loans from the government-backed Enterprise Turnaround Initiative Corp. of Japan and state-owned Development Bank of Japan to help it stay in business, said a person familiar with the talks. Enterprise Turnaround will make a decision on what aid to provide to JAL this afternoon, Maehara told reporters in Tokyo today, without elaboration. The carrier’s four biggest lenders will be asked to forgive or convert to equity a total of 256 billion yen under the turnaround plan, the Mainichi newspaper reported today, without citing anyone. Development Bank will have the largest share at 147 billion yen, the newspaper reported. The other lenders are Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc., it said. State Bailouts The company applied to Enterprise Turnaround after its own restructuring plan, which included 6,800 job cuts, was rejected by Prime Minister Yukio Hatoyama’s government and lenders in September as insufficient. The airline received three state bailouts in nine years before Hatoyama ended half a century of almost continuous rule by the Liberal Democratic Party last year. JAL has reported losses in three of the past four years. It filled less than 65 percent of domestic seats in each of the last six fiscal years on competition from bullet trains, All Nippon Airways Co. and Skymark Airlines Inc. The carrier also had a 16th straight drop in overall passenger numbers in November as the global recession sapped travel demand. Worldwide international air travel likely fell about 4.1 percent last year, according to the International Air Transport Association. JAL plans to cut operating costs by 25 percent in the three years through March 2013, the Nikkei newspaper reported yesterday. It will reduce fuel costs by revising futures contracts and using smaller airplanes, the Japanese-language newspaper said, without citing anyone. The carrier aims to post 115.8 billion yen in operating profit in the year to March 2013 compared with an estimated loss of 265.1 billion yen this fiscal year, Nikkei said. Investment Offers Delta and SkyTeam have offered a $1 billion package to JAL, while American and partner TPG have offered to buy a $1.4 billion stake as well as providing sales guarantees. Both carriers have said that bankruptcy wouldn’t deter them from an investment. Delta and SkyTeam’s offer to buy a $500 million stake in JAL is likely to be rejected, and the U.S. carrier will only have to cover the costs incurred in moving to SkyTeam from Oneworld, according to the two people familiar with the talks. Standard & Poor’s cut JAL to ‘selective default’ on Dec. 2. Moody’s Investors Service rates the company’s Japan Airlines International Co. unit Ca, meaning it is likely to default. To contact the reporter on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net

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