Analysis: Japan's ANA charts course through COVID with loans, domestic flights and accounting rules

From Tim Kelly
TOKYO (Reuters) - Japan's largest airline, ANA, has used billions in loans and a government tourism campaign to weather the slump in air traffic and could use accounting rules to avoid aircraft depreciation.
Like other airlines, during the coronavirus pandemic, ANA spent cash servicing jets that are either grounded or flying with too few passengers. This resulted in an operating loss of 159 billion yen ($ 1.51 billion) for the April-June quarter.
Sources told Reuters Wednesday that ANA Holdings Inc <9202.T> has received $ 3.8 billion in subordinated loans from government-backed and private lenders.
That means it has borrowed $ 13.29 billion to deal with the coronavirus fallout, says Yasuhito Tsuchiya, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities.
"It looks like they have enough to survive," said Tsuchiya, who predicts the airline expects a record operating loss of around 400 billion yen for the full year ended March 31.
The airline is cutting staff costs through layoffs and wage cuts. Along with rival Japan Airlines Co Ltd (JAL) <9201.T>, the company is also receiving government aid, including waiving airport landing fees as Tokyo sees airlines as critical to the preservation of Japan, a 3,000 kilometer archipelago that stretches across Edge extends from East Asia, connected.
ANA, which posted negative cash flow from operations of 135 billion yen from April to June, has announced that international aviation will not fully recover until 2024.
The company has more than 300 aircraft, including Airbus A380 superjumbos and double-gang jets like the Boeing 787 Dreamliner, and owns two-thirds of its fleet, while the rest are leased.
In late June, ANA announced that the aircraft were valued at 1.14 trillion yen ($ 10.83 billion), nearly unchanged from the previous year. However, analysts say this is unlikely to reflect current market value.
Maintaining planes that are grounded or underutilized could prove expensive due to parking and maintenance fees that cost ANA 177 billion yen last fiscal year.
Depreciation on some of them could result in a loss of profit, but would allow the air carrier to reduce depreciation costs in order to increase future profits.
However, analysts say ANA could instead take advantage of international aviation accounting rules, which don't force it to re-evaluate aircraft to reflect market prices, avoiding painful write-downs and the need for a capital increase.
"ANA has too many large aircraft. The calculated depreciation in the current market would be enormous, so there is no way they can be sold," said Hajime Tozaki, economics professor at JF Oberlin University in Tokyo and a former JAL employee.
Aviation consultant IBA this month estimated that the value of aircraft owned by airlines has fallen by $ 60 billion, 40% less than a balance between supply and demand.
"It is quite difficult to find buyers at any price except from lessors looking for bargains at low prices," said Richard Aboulafia, aerospace analyst for the Teal Group.

According to Tsuchiya, ANA and JAL have the advantage of a large domestic market with few competitors to make up for losses that other major Asian airlines such as Singapore Airlines Ltd <SIAL.SI> and Cathay Pacific Airways Ltd <0293.HK> lack.
According to data firm OAG, ANA was the ninth largest airline in the world this summer in terms of seat capacity compared to its 15th a year ago due to the relative strength of this home market.
Prior to the pandemic, ANA generated more than half of its revenue from domestic flights and demand recovered thanks to the government's Go To Travel campaign launched in July to revitalize domestic tourism, which aims to pay up to half of travel expenses.
Domestic bookings in October account for around 50% year-on-year, the ANA spokeswoman said, while the airline has stated that international traffic is at 5% of 2019 levels.
ANA, which will have to repay approximately 200 billion yen in debt next year, is expected to release results for the July-September quarter on October 27th.
The Japanese government on Friday announced further aid to airlines, saying it would cut airport landing fees on all domestic flights by a record 45% for seven months through February.
"The government needs both JAL and ANA as national flag-bearers," Tozaki said.

(Reporting by Tim Kelly; additional reporting by Ami Miyazaki and Takashi Umekawa in Tokyo; editing by Jamie Freed and Susan Fenton)

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