Japan Brief/FPCJ, No. 0983
January 25, 2010


JAL Files for Bankruptcy Proceedings to Restructure Itself

In Japan’s largest ever corporate bankruptcy apart from financial institutions, Japan Airlines, once the mighty national flag carrier, on January 19 filed for protection under the Corporate Rehabilitation Law to restructure itself for survival, with the government pledging full support to keep JAL’s operation going and remake it into a sustainable and profitable company in three years. The Enterprise Turnaround Initiative Corporation (ETIC), which is 50% owned by the government, is set to provide support as a sponsor and oversee the reorganization process under the surveillance of the court.

Debts at JAL and two of its subsidiaries—JAL International Co. and JAL Capital Co., which both filed for bankruptcy proceedings together with JAL—total 2,322.1 billion yen. To support the carrier’s rebuilding, the ETIC and the governmental Development Bank of Japan (DBJ) have 900 billion yen in public funds ready to invest in and lend to JAL. In a cabinet-approved statement, the government said that it “will provide necessary support for JAL until the completion of its rehabilitation, through such measures as securing sufficient funding.”

In exchange for such support, which includes taxpayers’ money, JAL is to be subjected to rigorous restructuring measures that include the elimination of 15,661 jobs, or one-third of its group workforce, and the additional termination of 31 routes from the current 229. The management team has stepped down and been replaced by new executives led by Kyocera Honorary Chairman Kazuo Inamori as chairman.

Meanwhile, as reported by The Nikkei (January 20), the DBJ, the three megabanks, and other financial institutions will have to forgive a total of 358.5 billion yen in credits to JAL. Shareholders are also taking their share of loss, as JAL’s stock is to be delisted from the Tokyo Stock Exchange on February 20, rendering the shares worthless.

According to media reports, the nation has already sacrificed more than 40 billion yen in public funds, because the DBJ’s credit to JAL that is to be forgiven includes a portion guaranteed by the government (also The Nikkei, January 20). Given the government’s commitment, even more taxpayers’ money is expected to be lost if the rehabilitation procedure fails to save the carrier in three years.

This makes the government all the more serious. In a statement announced at a press conference held on January 19, Minister of Land, Infrastructure, Transport and Tourism Seiji Maehara said that JAL “constitutes an important part of the aviation network that provides the foundation for Japan’s development” and that the government “strongly requests JAL to work vigorously on the improvement of its business and financial base with the utmost company-wide effort.”

In the press conference Transport Minister Maehara also referred to the government’s past civil aviation policy, commenting that “the state is also greatly responsible” for the difficulties JAL had to endure—including, for example, political pressure to make the airline fly unprofitable domestic routes serving airports in provincial areas.

On the other hand, Transport Minister Maehara also pointed out that JAL itself should be held highly responsible for its plight. According to media reports, nurtured by the government as the national flag carrier, JAL put off reforms needed to keep up with the changing business environment until it was too late, always counting on the government’s protection.

（see Japan Brief No. 0967, “JAL to Be Rehabilitated Under Government Control”）

Dependence on Government Criticized

It was on this point that major newspapers focused in their editorials (all on January 20). The Yomiuri Shimbun’s editorial, titled “JAL’s dependence on government invited bankruptcy,” said it all: “To rid itself of the ingrained management culture that has been far too dependent on the government, it was unavoidable for the company to declare bankruptcy.” At the same time, it pointed out that “there has been no clear explanation of why JAL is being bailed out by pouring a massive sum of public funds into it or why the nation's airline industry's two-carrier structure with All Nippon Airways should be maintained.”

The title of The Nikkei editorial, “Collapse of a complacent JAL that failed to reform management,” also questioned JAL’s corporate culture. Citing the 900 billion yen in public funds to be infused to bail out the carrier, it wrote, “Should the rebuilding attempt stumble, a huge amount of public burden will be incurred. In order to avoid such a situation, there is no alternative but to pursue a draconian restructuring on the three fronts of ‘personnel, equipment, and money,’ while maintaining the safety of flight operations.”

Calling for lessons to be learned from the past, the Asahi Shimbun editorial said, “The combination of the Liberal Democratic Party’s many years in power and deeply entrenched bureaucrats is also to blame for the decline in JAL’s business fortunes. Because of these factors, excessive construction of new domestic airports continued unabated with the result that JAL was called upon to fly unprofitable routes. Over the years, that brand of aviation governance allowed a lax management style smacking of dependence on the central government to run its course.”

As another problem, the Sankei Shimbun editorial took up the complicated situation of JAL’s labor unions, which are split into different sectors of the workforce within the airline. It described this as “one factor that has driven JAL to management difficulties to such an extent. An elimination of well over 10,000 jobs is in the offing, which requires both management and employees to engage in talks toward a cooperative setup with an understanding of the difficult prospects.”

Referring to Transport Minister Maehara’s remarks on a possible sweeping review of the nation’s civil aviation policy, the Mainichi Shimbun editorial argued that “In order to maintain vitality in the midst of a declining population, it is necessary for Japan’s aviation industry to take advantage of growth in East Asian countries, including China. A switch in aviation administration from such a viewpoint should give a push to JAL’s rebuilding.” This editorial similarly was titled, “Get rid of dependence on government.”

(Copyright 2010 Foreign Press Center, Japan)

*Japan Brief is an original production of the Foreign Press Center, Japan, and does not represent the views of the Government of Japan or of any other body.


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