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Wednesday, Jan. 20, 2010
Affiliates brace for impact from JAL's failure
Thousands of firms' livelihoods hang on shaky reassurances
By TAKAHIRO FUKADA and NATSUKO FUKUE
Japan Airline Corp.'s Tuesday filing for bankruptcy finally starts the carrier down the government-led rehabilitation path.
But its business affiliates worry about how JAL's turnaround process will affect them amid the worst postwar industry slump.
"It will undoubtedly be a heavy blow (to our company)," said an official of a Nagoya firm that cleans JAL aircraft blankets, earphones and crew uniforms.
The official, who declined to be named, said he fears orders from JAL will drop further at a time when many airlines have been reducing flights in the central Japan region.
The company's annual JAL-related sales amount to around ¥150 million, making the carrier the firm's largest trading partner, he said.
Although JAL has not contacted the company to spell out its latest business situation, the official said he wants to believe news reports that his company's sales to the ailing airline will be guaranteed. "We have to trust that," he said.
An official at a Tokyo-based company that inspects and maintains emergency equipment on JAL planes shares the same concerns.
Earlier this month, JAL sent his company a document stating that it plans to continue the business relationship, said the official, who also requested anonymity. His company's annual sales to JAL amount to around ¥350 million, or up to 90 percent of its entire sales.
"We are expecting our trade with JAL will continue," the official said, adding his company does not currently have a contingency plan should the situation worsen.
According to credit research company Tokyo Shoko Research, JAL has 13,334 business partners and affiliates in Japan.
The government has reportedly said JAL will continue to make payments for general business transactions based on existing contracts, even if it undergoes legal bankruptcy proceedings. Details, however, have yet to be revealed.
Despite repeated assurances from JAL and the government, Tokyo Shoko Research senior manager Nobuo Tomoda said JAL's restructuring will likely have a negative impact on its regional trading partners, dealing a further blow to regional economies that have already been suffering from the sluggish economy.
Tomoda said many nongroup firms with JAL business ties are regional in nature, and they will likely see sales fall as the airline downsizes.
He also said even companies without business ties with JAL group firms will be affected if the airline reduces or abolishes flights. These firms include souvenir shops, rental car companies and restaurants near regional airports.
"Firms that directly trade with JAL, (and also) those in regions that do not have business relations with JAL will be affected," he predicted.
Travel agents are also cautiously watching how the carrier will be restructured.
On Jan. 8, the Japan Association of Travel Agents asked some 1,200 member agencies to closely monitor their business deals with JAL via e-mail. However, it is not clear how much they will be affected by the court-handled rehabilitation plan, said a spokesman of the association.
"I can't say whether there will be a big impact on travel agencies because nothing has really been disclosed yet," he said.
According to a spokesman at H.I.S, a travel agency specializing in low-cost package tours, the company has not received any concerns from customers.
"We just have to observe the situation because (we) don't know what will happen," he said, adding it might affect business if JAL cancels flights.
Nippon Travel Agency, which dates back to 1905, is also waiting to see how the situation unfolds.
"If there are no flights to a destination where we have a package tour, we might have to change the destination of our tour," an NTA spokesman said. "But in recent years, travel agencies usually have business deals with several airlines."
Unless package tours are limited to just JAL, agencies can book with other airlines, he added.
However, it is uncertain if switching to smaller carriers would be a viable option.
The largest number of Nippon Travel customers use JAL, he said. "Our agency has been in business with JAL since the early days. . . . Thanks to our long relationship, JAL has been quite flexible (to our needs)."