Global Economic News

Japan Airlines To Undergo Bankruptcy; Pensions at Risk

Jan. 8 (EIRNS)—While there has been no formal government announcement, Japan's NHK reports that "The government has determined that struggling Japan Airlines should undergo court-led bankruptcy procedures to drastically rebuild the business, as confirmed by members of the Cabinet, including Finance Minister Naoto Kan and Transport Minister Seiji Maehara. NHK reported that "They agreed that the airline should file for court protection from creditors under the Corporate Rehabilitation Law."

Japan's national flag carrier, already been bailed out four times, has continued to lose money, and has debts of about $16 billion. As many as 10,000 workers are to be discharged, with all, or almost all, international routes being dropped, to be serviced either by Japan's All Nippon Airways, or U.S. carriers Delta or American (both are bidding for part of JAL's corpse). Unprofitable domestic service will also be curtailed, and many other economies.

To an extent, the bankruptcy discussion has been a game of "chicken" between, on one side, the carrier, the government, and the creditors, versus the airline employees and retirees. The linchpin to a successful restructuring of JAL (from a banker's perspective) was a 30% cut in current retirees' pensions.

So far, only 3,000 of 9,000 pensioners have agreed to a voluntary cut. The government, while it has mooted non-voluntary shedding of pension obligations, does not have the power to push such a "reform" through without destroying itself. JAL pension obligations have turned out to have been unfunded, based on optimistic assumptions about future profitability and stock markets.

China Denounces Speculative Capital Inflows

Jan. 6 (EIRNS)—Zhang Xiaoqiang, deputy director of the powerful National Development and Reform Commission of China (NDRC), denounced the "enormous" amount of speculative capital flowing into China today. Central bank statistics published in December showed a growth of incoming capital by $37.2 billion in November, of which $16 billion could be purely speculative. According to Zhang, a growing number of speculators are betting on the yuan's being revalued in 2010.