JAL (Japan Airlines) Files for Bankruptcy

[Gaybutton]

JAL Succumbs to Self-Inflicted Wounds

 

By Jonathan Soble, FT.com

January 19, 2010

 

Tokyo, Japan (FT) -- "I'd like to take a pistol and shoot every JAL executive of the last 20 years," says Hideo Fujiwara, an otherwise gently spoken 72-year-old.

 

The former pilot flew for Japan Airlines, which is filing for bankruptcy on Tuesday, for 34 years but will see his monthly pension shrink by 40 per cent to Y140,000 ($1,546) as a result of its bankruptcy.

 

"It's not about the money, it's about dishonest management," he says. "JAL was unprofitable but executives thought nothing of taking Y100m retirement bonuses."

 

JAL's wounds are indeed mostly self-inflicted. Like many Japanese groups it expanded recklessly in the 1980s, buying resorts, golf courses and shopping malls that plunged in value when the country's real estate bubble popped the following decade.

 

Management has often been fractious: one chief executive quit in 2005 after a series of safety lapses damaged the company's once-shining brand; another was forced out in a boardroom rebellion the following year.

 

Yet other elements of JAL's story are familiar to airlines worldwide. A cluster of external shocks over the last decade -- from September 11 to SARS, to soaring fuel prices and the global financial meltdown -- have left it battered. Government handouts are believed to be the only reason it did not fail sooner.

 

"JAL has always had the protection of the state, so it could put off making hard decisions," says Motoshige Itoh, an economics professor at the University of Tokyo. While big US carriers such as United Airlines, US Airways and Delta Airlines went through court-protected restructurings in the first half of the 2000s, it took the financial crisis and recession to finish off JAL.

 

Osuke Itazaki, a veteran airline analyst in Tokyo, says the restructuring plan being imposed on JAL by the Enterprise Turnaround Initiative Corporation, a state-backed corporate rehabilitation fund, should put JAL on a sound financial footing.

 

JAL is to cut 15,700 jobs, or a third of its workforce, sell dozens of non-core businesses and, through bankruptcy court, force its banks to write off much of its Y1,440bn in gross interest-bearing debt. Retirees have already accepted an average 30 per cent reduction in pension payouts, and current workers' benefits will fall by half.

 

"The question," Mr Itazaki says, "is whether things like management culture, strategic direction and quality will improve. Simply fixing JAL's finances won't solve those problems." Either way, the airline is likely to slip below All Nippon Airways in revenue terms in the next several years.

 

The government recently named Kazuo Inamori, the 77-year-old founder of the Kyocera technology group, to oversee the turnaround effort as JAL's next chief executive, replacing Haruka Nishimatsu, a career JAL insider.

 

One of Mr Inamori's first decisions will be whether to retain JAL's partnership with American Airlines and the OneWorld alliance or defect to Delta and its SkyTeam group, both of which are wooing the Japanese carrier. "This is a huge decision that could determine the future of JAL," says one official involved in the restructuring effort.

 

The decision, expected in the next few weeks, will say a lot about the sort of airline JAL managers and the government expect to emerge from bankruptcy. Delta -- whose approach is favoured by the transport ministry and many JAL executives -- already has big hubs in Tokyo and nearby Seoul, unlike the more Atlantic-focused American.

[Guest fountainhall]

I can remember the times in the 1980's when JAL was a proud carrier with an unbeatable trans-Pacific service. Last year I took four long haul flights with them on a discounted business class ticket. Apart from the unfailingly polite service, I found it by far the worst business class product I have flown in decades. As one who uses mostly One World alliance carriers, my only concern with the bankruptcy is it seems to be pushing JAL into bed with the Sky Team alliance. That, should it happen, will mean much more pressure on the already limited frequent flyer trans-Pacific tickets avaiable on the two other One World Pacific carriers, American and Cathay Pacific. Guess I'll have to switch to Star Alliance in future.