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Wednesday, Dec. 1, 2010
JAL revival plan gets court OK
By MIZUHO AOKI
Japan Airlines Corp. won court approval Tuesday for its rehabilitation plan and entered a new phase toward its rebirth, but it still has a lot of turbulence to fly through.
On paper JAL may clear its debt woes on schedule, but its threatened job and route cuts may pose high hurdles, as pilot and cabin crew unions weigh legal action and the latter threatens to strike on Christmas Eve and Christmas Day.
Meanwhile the entry of low-cost carriers poses greater competition hurdles for the once high-class national carrier.
"We will revamp (our business) early by conducting the rehabilitation plan faithfully," JAL President Masaru Onishi told a news conference. "We are aiming to build a muscular organization that can grow even in the intensifying competition, or event risk."
The plan, submitted to the Tokyo District Court in August, includes a ¥521.5 billion debt waiver from its creditors, a reduction of about 16,000 jobs, or some 30 percent of the JAL group's combined workforce, termination of 45 unprofitable domestic and international routes, and retirement of 103 aircraft.
With the court approval, the three debtor companies, Japan Airlines Corp., Japan Airlines International, Co. and JAL Capital Co., will merge Wednesday, with JAL International as the surviving entity.
Also on Wednesday, the carrier's bankruptcy administrator, Enterprise Turnaround Initiative Corp. of Japan, will lend ¥350 billion to JAL International, becoming the sole shareholder.
JAL plans to reorganize into a division-based profit system Dec. 15, said Hideo Seto, an ETIC trustee. That same day, a new management team will step in, adding 12 new faces, including from ETIC and Kyocera Corp.
JAL International will be officially renamed Japan Airlines Co. on April 1.
Major creditor banks, including Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp., agreed Nov. 19 to provide about ¥284.9 billion in new loans to JAL. With that, the carrier's aim to repay all of the remaining rehabilitation claims by the end of fiscal 2010 to complete the process is likely to be achieved, experts say.
Under the plan, JAL plans to post a ¥117.5 billion operating profit in fiscal 2012, effecting a V-shaped recovery.
The carrier also plans to relist its shares by the end of 2012.
The restructuring so far has been going well and the goal to repay its debt is likely to go smoothly unless unexpected huge "event risks" occur, experts say.
However, the question is how the restructuring will proceed after its benefactor, ETIC, lets it fly solo again and JAL Chairman Kazuo Inamori departs in two years, as per his wishes, experts say.
Hajime Tozaki, a Waseda University professor and former JAL employee, said JAL's future depends on how long the airline can continue to carry its current sense of tension.
"It depends on how much the new management can eliminate JAL's old DNA and implement new ways of thinking throughout the company," Tozaki said. "An organization tends to bloat easily. To avoid that, (JAL) needs to continue streamlining."
Another question is whether the carrier can survive the intensifying competition as more low-cost carriers enter the Japanese aviation market. For example, Malaysia-based AirAsia X plans to start service at Tokyo's Haneda airport on Dec. 9.
Hirotaka Yamauchi, a professor at Hitotsubashi University and an expert on transportation policy, said JAL needs to focus in areas where it excels.
"JAL can't beat (low-cost carriers) in terms of cost. It needs to emphasize its quality and target wealthy travelers — not only businesspeople but wealthy leisure travelers," Yamauchi said, noting the aviation market is expected to expand in Asia, where more people, especially in China, are experiencing newfound wealth.
Another hurdle will be terminating the contracts of up to 250 pilots and cabin attendants to achieve its job-reduction target.
Under the plan, JAL will reduce the number of group employees from the 48,714 it had in March to about 32,600 by the end of next March.
The JAL Flight Crew Union and Cabin Crew Union have voiced strong opposition to the decision and the leaders of both haven't ruled out legal action. Cabin attendants meanwhile plan to go on strike Dec. 24 and 25.