JAL runs out of runway


By Christopher Johnson
Asia Times
Jan 13, 2010


TOKYO - With markets recovering around the world in 2009, this holiday season was supposed to be a boon for air travel and companies such as Japan Airlines (JAL). Instead, the price of shares in the debt-burdened carrier, Asia's largest by revenue, continued a year-long descent after Christmas, as the airline heads towards seemingly unavoidable bankruptcy.

The shares dropped 12% last Friday to around 67 yen, after a near 70% plunge in 2009. The markets were closed on Monday.

Bankruptcy for Japan Airlines, which has operated without a fatal accident in 25 years, would be the sixth-largest in Japan, and raise concern for other listed companies in Japan that have heavy debts. JAL, which has reported a loss for three of the past four years, has been bailed out three times in the past nine years, when the country was under the control of the now-ousted Liberal Democratic Party.

The new government under Prime Minister Yukio Hatoyama of the Democratic Party of Japan is increasingly thought likely to offer no such rescue. JAL has at least 1.5 trillion yen (US$16 billion) of liabilities, and has placed orders for 35 Boeing 787s to add to its fleet of 279 planes as of last March, including 48 Boeing 747s.

Many of JAL's 47,000 remaining employees, known for their quality service, fear further reductions, in addition to 5,000 jobs cut since 2006.

The airline has suspended 13 international and 20 domestic routes, and closed eight offices, including three in China. Directors forfeited their December salaries. Employees received no winter bonuses, and agreed last week to 50% cuts in their future pensions. Four engineering subsidiaries have merged into one. Flights to New York, Chicago, San Francisco and Los Angeles are using smaller aircraft.

JAL's 8,800 retirees, many of whom have put some of their savings into JAL stock, are this week expected to decide on whether to accept 30% pension cuts amid fears that bankruptcy would wipe away their pensions as well as shareholdings.

"We've been trying to focus on reducing our pension obligations," said a JAL spokesperson, Sze Hunn Yap, in Tokyo. "We're waiting for replies by retired pensioners, who must decide by January 12."

While JAL and government officials have repeatedly made assurances that the airline would continue flying as usual, Japanese media have been rife with reports of impending bankruptcy.

Without citing sources, the Asahi newspaper reported on Monday that JAL's shares would be delisted, meaning shareholders would lose everything. Kyodo News reported on Monday that JAL would lay off 15,600 employees, almost a third of its work force, over the next three years, and reject billion-dollar cash offers from Delta and American Airlines, as it files for bankruptcy and embarks on a government-led turnaround.

Founded in 1951 and privatized in 1987, JAL has struggled from high fuel prices, security paranoia since the September 11, 2001, New York terror attacks, and most recently the global financial crisis. The 2009 swine-flu scare further weighed on a reluctance around the world to travel. "It's very untimely for us that the global financial crisis hit last year," says Yap. "Following that, the swine flu came in. It's not something we could have anticipated. We have a greater exposure to international risk because we have more international operations."

Many air passengers in Japan look further than such corporate concerns, and link JAL's demise to over-regulation and a backward domestic transportation system.

Due to high costs of labor and imported fuel, and a lack of consumer rights, JAL passengers who live in southern Kyushu or northern Hokkaido must pay 40,000 yen, or US$435, one-way to Tokyo, about an hour's flight, unless they own shares in JAL (which qualifies them for 50% discounts). To fly to Vancouver or New York, or even nearby China, many Japanese have to fly to the domestic hub of Haneda airport southwest of Tokyo, then lug their bags on two-hour train trips with transfers to the international airport in Narita, about 60 kilometers northeast of Tokyo. In light of this, many Japanese use Seoul, South Korea, as a hub for traveling in and out of Japan.

Japan's airports also have a vintage feel compared with the futuristic portals of Shanghai, Hong Kong and Kuala Lumpur. Narita international airport, in the boondocks of Chiba, can resemble a local airport with a hometown feel. On returning to Japan, a sign in Japanese greets one with o-kaeri-nasai - what a mother says to kids coming home from school. Customs officers, often older "uncles" who resemble the gentle guards at banks and train stations, typically waive passengers through to trains and buses only a few steps away.

While other global hubs buzz with landings and take-offs around the clock, Narita closes down for the night at 11pm, out of respect for early rising local farmers. A few years ago, when rain delayed a departure from Beijing to Tokyo beyond Narita's witching hour, Air China had to cancel the flight and scramble to find buses and four-star hotel rooms in Beijing for hundreds of exasperated Japanese passengers - who blamed China, not Japan, for the inconvenience.

Narita's early closing time also forces business travelers to take red-eye flights from southeast Asia, and arrive in Narita at 7am for meetings in Tokyo without sleep. Coming from North America, passengers on dozens of flights, which tend to arrive at about the same time in the late afternoon, often must stand in line for an hour or more to get fingerprinted and stamped into the country.

To people accustomed to Western logic, the solution is simple. Open up Haneda airport, which is set to get a fourth runway later this year, to more international flights, and keep it running 24 hours, since it's located on a man-made island in Tokyo Bay surrounded, not be residential areas, but by chemical factories, warehouses and shipyards.

But when the new Transport Minister Seiji Maehara floated that idea last autumn, the governor of Chiba erupted on TV in protest, saying it would rob the prefecture of jobs and revenue. Entrenched bureaucrats warned that opening more gates would allow more foreign criminals to seep into fortress Japan, instead of funneling them first through the remote guard post of Narita.

Instead of demanding more accessible airports, the Japanese public, meanwhile, are going in the opposite direction. Protesters, including seniors and local politicians, are demanding the closure of US military air bases in Okinawa and western Tokyo because the planes rattle windows and shake the wooden houses of seniors who need peace and quiet.

Given these headwinds, JAL has recently lost market share to rivals ANA and upstart Skymark airlines. Like a modern version of the World War II super-battleship Yamato, JAL was the flagship of Japan's export juggernaut. Now many investors and passengers wonder if JAL, like the Yamato, which was sunk en route to Okinawa by US air raids in 1945, will become the victim of its own largesse.

Tokyo-based journalist Christopher Johnson is author of Siamese Dreams.

http://www.atimes.com/atimes/Japan/LA13Dh01.html