Whether they are cash-strapped or expanding, Asia’s aviation industry has proven to be a big source of work for the region’s law firms recently. Top of the list now is Japan Airlines’ (JAL) bankruptcy filing, one of the biggest corporate collapses in Japan’s history. Japanese law firms Abe Ikubo & Katayama (AIK) and Nishimura & Asahi have been appointed as advisors to proceedings.

The key person behind the restructuring will be AIK managing partner Eiji Katayama, who has been appointed as the legal trustee advising JAL’s bankruptcy arrangers, Enterprise Turnaround Initiative Corporation (ETIC). Katayama will be responsible for conducting various tasks in accordance with the country’s Corporate Reorganisation Act. The JAL restructuring will also keep a team of 17 Nishimura & Asahi lawyers busy.

Both firms are expected to work closely to resolve numerous issues from the restructuring plan, such as employment law obligations and JAL’s asset sales. The former state-owned airline is reportedly US$16bn in debt, and to recoup some of its losses it will cut a third of its workforce and receive a cash injection from the Japanese government.

The restructuring is expected to take up to three years and is a highly politically charged event, especially after Prime Minister Yukio Hatoyama said that “the revival of Japan Airlines is deeply connected to the revival of the Japanese economy.” It is also understood that another local firm, TMI Associates, was approached by a local politician last November, seeking advice on the possibility of pension cuts in the event of the airline’s bankruptcy.

Meanwhile, US law firms Hogan & Hartson and Jones Day are helping two competing airlines invest in JAL. Hogans is advising Delta Airlines and Jones Day is advising American Airlines, who are both proposing investments of more than US$1bn in JAL.

Alternate offerings

Law firms are also looking to Asian low-cost carriers (LCCs) as one of the main drivers of aviation work in the region. Seven firms have now been retained for Singaporean airline Tiger Airways’ US$178m IPO, the first offering by an Asian LCC in five years. Since launching in 2004 the airline has grown steadily, and expects to use the IPO proceeds to fund its expansion in Australia and South-East Asia.

“There is a growing recognition of the role played by LCCs, especially in Asia,” said Stamford Law director Joo Khin Ng, an advisor on the transaction. “As more players get into the LCC arena, there will certainly be additional work and demand for the region's law firms.”

In Indonesia, low-cost carrier Lion Air went on a spending spree in December, financing seven new aircraft valued at US$500m. The transaction was the largest aircraft financing in Indonesia last year and the first US Export-Import Bank supported financing in Indonesia in 20 years. A six-strong legal team from Stephenson Harwood’s Singapore and Paris offices advised Lion on tax and regulatory issues, as well as resolving financing requirements for the Export-Import Bank of the US.

Another aviation player to watch is Lion Air’s fellow Indonesian carrier, Garuda. In January the airline successfully bought back US$45m of its floating rate notes due 2007. K&L Gates was the airline’s international counsel and Jakarta-based firm Wiriadinata & Saleh was local counsel, assisting with the restructuring and buyback of the notes. The transaction effectively helps pave the way for the state-owned carrier to launch its much awaited IPO later this year. While K&L Gates’ lead partner on the deal, Singapore-based Kevin Murphy, did not confirm that his team would also be leading on the offering, he said the transaction was important not only for the aviation industry, but also his firm.“Having the flag carrier in the largest South-East Asian country finalise its debt restructuring is critically important to the [aviation] sector,” he said. “I think the sector will be active for the foreseeable future and will be an important area for law firms to focus on.”

Lion Air is also expected to launch an IPO this year and Stamford Law’s Ng, a capital markets lawyer, sees this as a growing trend. “In the last couple of years, we have seen an increasing number of fund raising exercises and listings involving Asia's aviation industry – they are certainly fuelled by the growth in the [aviation] sector,” he said.  “The Tiger Airways IPO [is just one example] demonstrating the growing interest of both institutional and retail investors in the aviation industry.”