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Saturday, Dec. 4, 2010


Getting JAL on its feet

Japan Airlines Corp. on Nov. 30 received approval from the Tokyo District Court for its reconstruction plan. JAL achieved a consolidated operating profit of ¥132.7 billion in the April-October period helped by a strong yen and a temporary upturn in the Japanese economy.

But the reconstruction of JAL won't be easy, given its internal problems and possible competition from low-cost carriers. It needs to turn itself into a competitive firm within two years or so.

The main features of the rehabilitation plan are: a ¥521.5 billion debt waiver from banks, debt rescheduling by the end of March 2011, a ¥350 billion investment in JAL by its bankruptcy administrator, the stated-backed Enterprise Turnaround Initiative Corp. (ETIC), slashing of some 16,000 jobs of the group workforce to some 32,600 by the end of March 2011, decommissioning of 103 fuel-guzzling aircraft, and the termination of 39 domestic and 10 international money-losing air routes. JAL must achieve a consolidated profit of ¥117.5 billion in the April 2012-March 2013 period.

Mr. Kazuo Inamori, founder of Kyocera Corp. who became chairman of JAL at the request of the Democratic Party of Japan government and ETIC, has made efforts to change the consciousness of JAL officials and workers, who are accustomed to JAL's high-cost structure. Some JAL executives have been retired and people from Kyocera and ETIC have joined JAL's management.

JAL plans to fire up to 250 pilots and flight attendants because only about 70 applied for voluntary early retirement, about 200 below the goal number. If management mishandles this matter, labor-management relations could become extremely bad. This in turn could hamper the reconstruction efforts and lead to safety problems. Before making dismissals, management should first attempt to cut costs by negotiating salary and benefits cuts with labor. And labor should cooperate to reduce costs.

In addition to cost-cutting, JAL must take full advantage of the upcoming expansion of flight slots at Haneda and Narita to increase its revenue.

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