JAPAN - The draft plan for Japan Airlines' reconstruction compiled by a task force of corporate turnaround experts is certain to face many obstacles, including from the airline's creditor banks.

The task force was launched under the authority of Construction and transport minister Seiji Maehara.

The draft report includes seeking a debt waiver of about 250 billion yen (US$2.7 billion), a debt-for-equity swap worth tens of billions of yen, and laying off more than 9,000 employees.

Some financial institutions have expressed reservations over the size of the debt waiver, while there is growing unrest among JAL employees toward the stepped-up restructuring measures.

On Tuesday (October 13), the task force explained the details of the draft report to JAL and its main creditor banks, including the Development Bank of Japan. As of the end of March, the nation's flag carrier had about 800 billion yen ($8.8 billion) in interest-bearing debts. With the debt waiver and debt-for-equity swap, the amount of assistance from financial institutions for these debts will total nearly 300 billion yen ($3.3 billion).

The plan aims to increase the airline's financial standing, coupled with capital reinforcement through public financial assistance, and also reduce interest payment burdens.

Under the reconstruction plan drafted by yet another panel, which was formed under the previous Cabinet of then Prime Minister Taro Aso, there was a possibility the amount of the additional loans provided by the Development Bank of Japan and major banks would remain at 100 billion yen ($1.1 billion).

Under the new draft, it is likely the financial institutions' assistance will swell significantly, and financial institutions have expressed their dissatisfaction, saying they cannot agree to the massive debt waiver.

A market analyst said that as it would be necessary to increase allowances to cover possible loan loss, banks cannot simply accept it.

Under the turnaround plan, JAL will increase the number of job cuts by more than 30 per cent - from the previously stated 6,800 to more than 9,000 employees. This figure represents a nearly 20 per cent cut from its total staff strength of 47,500.

Corporate pension benefits also will be cut, a move that will help shrink the deficit in a reserve fund, including for pension payments, from the original 330 billion yen ($3.6 billion) to 100 billion yen ($1.1 billion). The draft also states that future reserve funding will be cut by 230 billion yen ($2.5 billion).

However, this would require more employees to take early retirement, and there is deep unease among the firm's employees. As the reduction in corporate pension benefits requires the consent of more than two-thirds of employees targeted for the pension cuts, one analyst said, "The negotiation hurdles have increased significantly."

The draft also entails the cutting of about 40 international and domestic routes, which is fewer than the originally planned 50 routes. As a plan has been hammered out in the draft to proceed with the replacement of large jets to smaller aircraft, it looks as if some routes, whose balance of income and expenditure has improved, will not be cut.