The stakes are high for not only Japan Airline‘s 47,000 employees and 8,800 retirees, but for Japan’s economy as a whole. JAL carries 50 million passengers a year and hasn’t had a fatal accident in 25 years. But its share price has crashed recently, from a high of around 250 yen in March 2008 after it posted net income of ¥16.9-billion yen, to levels between 60 and 90 yen in recent days.
Japan’s new finance minister, Naoto Kan, is expected to decide this month whether the government, which has a debt twice that of the country’s GDP, will bail out JAL for the fourth time in a decade. “I expect the turnaround body to support JAL,” Mr. Kan told a news conference yesterday, referring to the Enterprise Turnaround Initiative Corp. of Japan.
Many Japanese are against funnelling more of their tax money toward well-off JAL retirees. But if the company collapses, it could deliver a blow to the Nikkei stock index along with JAL’s main creditors – including Japan’s three largest private banks. On the other hand, if JAL were able to merge with another airline, or shed pension costs to improve its balance sheet, it could spark a chain reaction of much-needed change across corporate Japan.
Like many companies across greying Japan, JAL must deal with a legion of seniors – still working or retired employees. A recent survey by Nikkei newspaper found JAL’s pension shortfall, which it estimated at ¥330-billion ($3.6-billion), is the 10th biggest among 400 major corporations (with Hitachi, NTT and Toshiba in the top spots). JAL has reported a loss of ¥131.2-billion yen ($1.5-billion) for the fiscal first half and the Nikkei reported yesterday that losses could balloon to ¥1.2-trillion yen ($13.3-billion) for the full year. Meanwhile, JAL retirees must decide by Jan. 12 whether to accept 30-per-cent cuts to pensions; the most must be approved by two-thirds of the 8,800 pensioners.
It’s a far cry from the booming 1980s, when JAL ferried millions of Japanese abroad for the first time, on smooth flights known for impeccable service. It was the crown jewel of Japan’s corporate royalty. But critics say the carrier has a become the victim of its own largesse and inertia; workers have become jaded, their jobs protected by unions and personal ties. When the global economy crashed in late 2008, Japanese stopped travelling, and JAL’s stock tumbled, in part because as the company’s Ms. Yap said, “we have a greater exposure to international risk because we have more international operations.”
JAL spokeswoman Sze HunnYap said the company’s senior executives and directors have been phoning pilots and other retirees to persuade them it’s better to take pension cuts and save the ship than for everyone to drown in debt. Protecting pensions has become a rallying cry for seniors, who comprise a third of Japan population. Last September, voters ousted the ruling party, after 55 years in power, after bureaucrats lost or messed up the pension records of 50 million people.
Many Japanese say they’re worried that companies such as JAL will use the recession as an excuse to hold back pension money promised when times were good. There’s no question JAL has been trying to cut costs across the board: its directors forfeited their December salaries; employees received no winter bonuses, and agreed last week to 50-per-cent cuts in future pensions. Four engineering subsidiaries have merged into one. The airline has suspended 13 international and 20 domestic routes, and closed eight offices, including four overseas. More than 5,000 jobs have been slashed since CEO Haruka Nishimatsu took the helm in 2006.
As for talk of a possible merger of JAL with Delta or American Airlines, many Japanese see those companies as opportunist invaders who will devour JAL’s 280 planes and spit out its work force. Kevin Mitchell, chairman of the Business Travel Coalition, which represents 300 multinational companies, told reporters in Tokyo yesterday that his group opposes a Delta merger with JAL, which would total 62 per cent market share on U.S.-Japan routes. He said he doubted if such as merger would clear U.S. antitrust regulations. But Delta president Edward Bastian told reporters in Tokyo yesterday that he expects regulators would bless a merger. “JAL is certainly going through a difficult time. But you need to remember that they represent the country that is the second-biggest economy of the world.”