Japan Air Focuses on Tie-Ups as Once-World's No. 1 Exits Court Protection
By Chris Cooper, Bloomberg News | Mar. 28, 2011
Japan Airlines Corp., once the world's largest international carrier, is set to emerge from bankruptcy administration this week as a smaller company more reliant on Asian routes and global partners.
JAL has scaled back its global network, chopping 49 routes, including Sao Paulo, Amsterdam and Milan, and grounding the last remnants of what was the world's largest Boeing 747 fleet as it cuts 103 planes. The Tokyo-based airline, which holds a regular press briefing at 5 p.m. today, has also shed about a third of its workforce since entering court administration in January 2010 following three losses in four years.
"JAL has to be far more open-minded about its future than being a standalone airline," said Mike Newman, head of sales at Macquarie Capital Securities (Japan) Ltd. "It all comes down to sustainability of earnings."
The carrier has offset fleet cuts by boosting cooperation with partners in the Oneworld grouping, including a venture with American Airlines that is due to start on April 1 and increased codesharing with Hong Kong-based Cathay Pacific Airways Ltd. The carrier's reduced role has also seen it shun the new 747-8 and Airbus SAS's A380 superjumbo in favor of smaller planes including 35 on-order 787 Dreamliners.
"I don't think it will be growing back to where it was," said Peter Kenworthy, a project director of aviation at Mott MacDonald Group Ltd. "It will probably be looking to increase capacity through its alliances."
Japan Quake
The airline expects to complete its restructuring this month as planned, Sze Hunn Yap, a spokeswoman, said on March 25, without elaboration. Chairman Kazuo Inamori and President Masaru Onishi will attend today's press briefing, according to an e-mailed invitation.
JAL's exit from court administration coincides with a travel plunge following a magnitude-9 earthquake and tsunami on March 11, which left more than 27,000 dead and missing, according to the National Police Agency. The temblor also crippled a nuclear-power plant north of Tokyo, causing power shortages and concerns about radiation leaks.
Following the quake, Tokyo's Narita Airport, Japan's main international gateway, had a 60 percent drop in foreigners arriving from overseas through March 22, a spokesman for the Immigration Bureau of Japan's Narita branch, said last week. All Nippon Airways Co., the nation's largest listed carrier, had a 25 percent drop in domestic passenger numbers through March 21 and a 15 percent decline in international travelers, it said last week. JAL is still compiling figures, said Yap.
"The earthquake wasn't the best thing for them," said Newman. All Nippon has tumbled 7.8 percent since March 10, the day before the temblor.
ETIC's Role
Enterprise Turnaround Initiative Corp. of Japan, the state-backed fund that has led JAL's 872 billion yen (US$11 billion) turnaround, will continue to oversee the carrier once it leaves court protection. The fund, which can work with JAL until January 2013 under its own regulations, has pledged to invest 350 billion yen in the airline. It eventually aims to sell shares in the airline, EITC Chairman Hideo Seto said last year.
JAL was delisted from the Tokyo stock exchange in February, 2010, wiping out shareholders in a company that was worth more than US$6 billion less than a year earlier. As part of its turnaround, the carrier has revived the crane livery it used in the mid-1980s, when it was the world's largest airline for international traffic, according to its website.
JAL-Oneworld Tieups?
JAL will cooperate with AMR Corp.'s American on 10 transpacific routes, including New York-Tokyo and Beijing-Chicago. The tie-up will generate sales gains and cost savings of about US$150 million a year for the two carriers as they share costs and coordinate fares, American said in January. The venture will have annual sales of about US$1.5 billion, it said.
JAL wants to pursue similar tie-ups with other Oneworld airlines, Onishi said in January. International Consolidated Airlines Group SA's British Airways unit and Qantas Airways Ltd. are also members of the grouping.
All Nippon will begin a transpacific accord with United Continental Holdings Inc. on the same day as the JAL-American alliance begins. The Tokyo-based carrier has also applied to form a similar partnership with Deutsche Lufthansa AG on flights to Germany. All Nippon, United and Lufthansa are all members of Star Alliance.
JAL Cuts
JAL has cut costs by shedding 14,500 jobs through December, against a target of 16,000, by closing and selling units, offering early retirement and firing some workers. Creditors including Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group, Mizuho Financial Group Inc. and state-owned Development Bank of Japan have also agreed to forgive 522 billion yen of debt.
The steps helped JAL making an operating profit of 110 billion yen for the April-September period, compared with a loss of 96 billion yen a year earlier.
"There's been so much direct and indirect government involvement, they have been given a pretty good leg-up," said Peter Harbison, managing director at the Sydney-based Centre for Asia Pacific Aviation.