JAL should end dependence on govt
The government has officially decided to provide financial support to Japan Airlines, which has been suffering from poor business results, since it apparently can no longer allow Japan's flag-carrier to further decline.
Support for JAL will include an emergency loan worth 100 billion yen to be extended jointly by the government-backed Development Bank of Japan and three major private banks with the government guaranteeing 80 percent of the loan. Along with securing the loan, the government also will directly supervise the reconstruction of the airline.
It is unusual for the government to support a private company with such a huge loan, but taking into account the importance of the service JAL provides to the public and the impact it has on the national economy, the government may deem it imperative to act. JAL should fundamentally review its management, considering this its last opportunity to reform itself.
JAL reported post-tax losses of 63.1 billion yen for the business year ending in March 2009. The airline is expected to declare almost the same amount of losses in the business year to end March 2010, too. It climbed into the black in the business year ending March 2008 for the first time in three years, but returned to the red only one year later.
Combination hurt bottom line
The company's poor performance is attributed to the aftereffects of high fuel prices last year and a sharp decrease in passengers due to the global recession. The decrease in passengers on domestic routes, a major revenue source for All Nippon Airways Co., which is JAL's rival, was small. However, the number of passengers on international routes, a major revenue source for JAL, decreased by more than 10 percent compared to the previous period.
JAL has succeeded in cutting labor costs to a certain degree. But the airline has failed to reduce interest-bearing debts quickly and been slow in improving its balance sheet. The company also has delayed in changing its planes to smaller, more fuel-efficient aircraft and investing money in a strategic manner.
It can no longer expect a turnaround through mere stopgap cost-cutting measures. JAL should study whether to continue unprofitable businesses, including the option of transferring them to other companies, while it needs to consider not just reducing the number of flights on money-losing routes, but dropping those routes altogether. Such drastic restructuring measures are essential for JAL.
Long history of bail-outs
The airline had received emergency loans from the DBJ to help it weather the poor business results it suffered due to the Sept. 11, 2001, terrorist attacks on the United States and other incidents in the past. With the addition of the latest loans, the total extended by the DBJ to JAL would exceed 300 billion yen.
JAL probably cannot refute criticism that the airline has not yet completed sufficient corporate restructuring, but has no qualms about relying on government-backed bank loans because it has not yet ended its dependence on the government stemming from its days as a government-affiliated company.
JAL cannot win the approval of the public for the government assistance it is to receive without reforming its corporate structure. Some observers point out that eight trade-specific unions at JAL are obstructing restructuring. It is also necessary to stick the knife of reform into such complicated labor-management relations.
Meanwhile, aviation authorities are partly responsible for JAL's poor performance because they have built nearly 100 airports around the country and put political pressure on the airline to open unprofitable routes.
In supporting JAL once again, the government and the ruling parties should take this opportunity to closely review past aviation policy.
(From The Yomiuri Shimbun, June 23, 2009)