Page last updated at 12:02 GMT, Thursday, 14 January 2010

Up in the air: Can JAL's fortunes be turned around?

By Roland Buerk
BBC News, Tokyo

A Japan Airlines (JAL) 747 passenger plane at Narita International Airport near Tokyo
JAL could lay off up 15,600 people

Investors have driven Japan Airlines (JAL) shares into the floor, desperate to sell before they lose their shirts.

The price hit 7 yen, just 8 US cents, a new record intraday low. A year ago it was 213 yen.

The selling has been unstoppable, pushing the airline towards the sixth biggest bankruptcy in Japanese history.

That this is being allowed to happen to the national flag carrier says a lot about the change the new government elected last year wants to bring to Japan.

The centre-left Democratic Party of Japan has pledged to spend less taxpayers' money on propping up failing corporations, and more on social programmes to help ordinary people instead.

As a general principle I think shareholders should bear some responsibility
Yukio Hatoyama, Japan's Prime Minister

The conservative Liberal Democratic Party, which governed with just one break for more than 50 years before losing the election in August, bailed out JAL repeatedly.

Now the Prime Minister Yukio Hatoyama has said that "as a general principle I think shareholders should bear some responsibility".

Asia's biggest airline will not be entirely cut loose though, as old habits die hard.


The Enterprise Turnaround Initiative Corporation (ETIC), a state-backed body that has access to public funds, will be giving significant support through a restructuring.

That process is expected to start with JAL seeking protection in the courts from the holders of its estimated 1,400 billion yen ($15bn; £9.4bn) in liabilities - a bankruptcy filing.

The process, similar to Chapter 11 in the United States, allows a company to continue its operations and pursue a revival.

Kazuo Inamori
Kazuo Inamori is set to lead JAL through restructuring

Some of Japan's biggest banks will be asked for debt waivers.

It is widely expected that the airline will be delisted from the Tokyo Stock Exchange, wiping out remaining shareholders.

This week the company's pensioners agreed to cuts of around 30% in their payouts - good news for the airline as the black hole in the scheme represents a significant proportion of its liabilities.

Members of staff who have not yet retired had already said they would accept even bigger reductions.

Zen monk

It is Kazuo Inamori who is set to take on the daunting task of leading JAL through a restructuring.

His appointment is being seen as a break with the past management style at the airline, which has been criticized for being slow, overly bureaucratic and too certain of government support.

I'm a complete amateur in the transport industry but I would like to do my best in offering my cooperation
Kazuo Inamori, JAL's new chief executive

At 77, Mr Inamori is regarded as one of Japan's great post-war entrepreneurs, who founded not one, but two, blue chip companies.

He made his first fortune with the electronics component maker Kyocera Corp and his second with KDDI, Japan's number two mobile operator.

He is close to the governing Democratic Party of Japan, but he has no direct experience in aviation.

''I'm a complete amateur in the transport industry but I would like to do my best in offering my cooperation,' he says.

Passengers at Japan Airlines (JAL) check in through a self-check-in machine at Haneda Airport in Tokyo, Japan
JAL is Asia's biggest airline

''If we steadily implement the rehabilitation plan that is being compiled by ETIC, I believe revival is possible."

The serenity he doubtless enjoys as a Zen monk will probably help. He was ordained in 1997.

And middle managers at JAL will be thumbing through the 11 books he has written about management including Respect the Divine and Love People, and Elevate Your Mind and Expand Your Business.

Generously sprinkled with philosophy, they advocate creating small divisions within companies, each of which must be profitable.

Cutting routes

Japan's government has pledged to keep JAL's planes flying during the coming restructuring.

But the airline that emerges from the crisis could look very different.

It has already announced that it is cutting many international routes and it could lay-off up to 15,600 people - a third of its workforce.

For years Japanese governments spent huge sums on construction projects to try to keep the economy going, including many airports.

It is JAL which has served them.

One option reported to be under consideration is setting up a budget airline with only economy seats to try to make some of the unprofitable routes pay their way.

As investors fight to get out of JAL, global airlines are still circling, hoping to increase their access to the Asian market.

American Airlines and Delta Airlines are competing for a tie up.

But reports in Japan say that with bankruptcy looming both offers may be turned down, for now.

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Xinhua News Agency Japan to confirm date for JAL restructuring announcement - 1 hr ago
Reuters via Yahoo! JAL draws on emergency funds as bankruptcy looms - 7 hrs ago
Times Online Japan may just be on the path to comfortable irrelevance - 12 hrs ago

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