The Source who Crashed Japan Airlines

As JAL’s sudden demise has shown, the most powerful person in Japan is not Prime Minister Yukio Hatoyama, or even skater Mao Asada, but a person known to all of us as The Source. The Source is so huge, so awesome, journalists in Japan don’t dare utter his name. While we are small, he is “highly placed,” “knowledgeable” and “familiar with the matter.” Like the Tao of ancient China, The Source cannot be defined. Given his God-like qualities, he cannot be questioned.

The Source, mysteriously lurking behind the scenes in boardrooms and limousines, almost single-handedly obliterated one of the world’s largest and safest airlines. Founded in 1951 and privatized in 1987, not even JAL, with 280 jets, 47,000 employees and 50 million passengers a year, could withstand the almighty badmouthing of The Source.

To achieve his ends, The Source played the Japanese media – and the foreign press – like a shakuhachi. At first, over the course of 2009, he released pearls of wisdom from his mouth, like Michael Stipe of REM, a bit at a time. Japan Airlines, he said, was losing billions of yen due to crippling debt. It was going to stop flying to Mexico because of swine flu. It was going to close offices in China. The balance sheet is so ugly, the Source said, the company won’t even make a forecast for 2010.

Instead of waiting for official confirmation, or named sources speaking on the record, the Nihon Keizai Shimbun, Asahi, Yomiuri, Kyodo, NHK and the others ate this up. As share prices in Japan’s flagship carrier fell from ¥200 to ¥100 over the year, it confirmed their doomsday theory that the graying Japanese race is headed for extinction like the conodonts and trilobites.

Creeping in the shadows, The Source then went to work over Christmas and New Year’s while the rest of Japan was drunk on vacation. JAL’s 8,800 retirees, The Source said, were stubbornly blocking reforms by refusing to accept a 30-percent pension reduction. (Even though JAL’s in-house survey, after 200 meetings with employees and retirees, suggested they were very close to the two-thirds threshold needed by law). In the last days of trading, JAL’s share price fell from ¥100 to ¥60 upon unconfirmed reports that the government was going to abandon its pet airline to the dogs of bankruptcy court. FALSE HOPES RAISED
But then, just before the first trading day of 2010, Transport Minister Seiji Maehara came out and said the government would continue to siphon “emergency loans” to the airline through its Development Bank and the cheerfully named Enterprise Turnaround Initiative Corporation (ETIC). The stock rebounded to the high 90s, and it seemed that JAL, already bailed out four times in a decade, would continue flying with its nose held high.

But then, over the course of yet another long weekend, The Source moved in for the kill. While the markets were closed, he flooded Japanese media with “evidence”of impending bankruptcy.

At first, it looked like Japan Inc. was using its friends in the media to gang up on those little old pensioners. Then, The Source got really nasty. The government will put JAL through bankruptcy, the Nikkei reported late on Jan. 8, without naming sources. JAL was going to be delisted, and shareholders would get zero, said Asahi on Jan. 11, without citing where it got the information. JAL was going to lay off 15,600 employees – a third of its workforce – and file for bankruptcy, said Kyodo, without saying where it got the information.

As investors stampeded for the exits on the morning of Jan. 12, Prime Minister Hatoyama had a chance to calm nerves and buoy JAL’s stock. He could have done an Obama and scolded greedy executives, or he could have blamed 55 years of LDP corruption forcing JAL to fly money-losing routes to pork-barrel airports. Instead, Hatoyama in effect blamed the victims – retirees and investors – for JAL’s collapse. “If we talk about who is responsible for the current (bleak) situation of JAL, I believe all (of them) should take responsibility,” Hatoyama said, as quoted by Kyodo.

This prompted the biggest sell-off in Japanese stock-market history. JAL’s market capitalization shrunk to levels below Tunis-air and Austrian Airlines. Shareholders and analysts were outraged, and JAL employees privately complained that the media was “pulverizing” their company.

If this was America, we’d see Enron-type images of protesters confronting CEOs. If this was China, there’d be executions. But in Japanese media, there was a great profound shoganai of yawning acceptance. A search through major Japanese-language media found not a single print story or TV report all week quoting a disgruntled shareholder.

On NHK World, which can’t be seen on TV inside Japan, a weary Ron Madison read off an Orwellian line, which he surely didn’t write: “The banks also agreed to government plans to delist JAL shares to retire 100 percent of those shares to make up losses incurred by the company in order to make the responsibility of shareholders clear.”

Yet throughout this hailstorm, Bloomberg and other foreign outlets often reported that officials for JAL, ANA, the banks, the Finance Ministry, the ETIC and other players either declined comment or didn’t return calls. For investors, there was nobody coming forward to separate fact from fiction. Only the share price reflected a reality born of confusion.

SILENT RUNNING
Seemingly dumbfounded by the destructive force of The Source, JAL became speechless when it should have roared in self-defense. President Haruka Nishimatsu or some cute JAL flight attendant should have taken the press onto a jumbo jet at the expanding Haneda Airport and announced over the intercom: “This is the captain speaking. We’re encountering turbulence and have had a slight malfunction, which we’re working to correct. Relax, keep your seat belts fastened and wait for further instructions.”

Like Ford when GM and Chrysler were going under, JAL should have stood up and publicly rejected offers of aid from the government or major U.S. airlines Delta and American, whose leaders were in Tokyo to spin events their way. Instead, out of arrogance or just plain bad timing, JAL gave us good news from the never-never land of the dreaming skies.

On Jan. 13, when JAL’s stock was plunging by its ¥30 limit, the company put out a press release. “For the second year running, Japan Airlines (JAL) has once again been conferred by the Chicago Athenaeum: Museum of Architecture and Design, the prestigious Good Design Award for 2009. The award goes to (drum roll please) Sky Gallery – a relaxing space fitted with a photo exhibition panel and full-service bar onboard the airline’s latest international executive-class cabin. This award follows the win in 2008 for the ergonomic and ecological design of chopsticks used in JAL’s first class.”

Omedeto! Way to go JAL! Your chopsticks are indeed ergonomic. But sadly, it wasn’t enough to stop the tobogganing stock.

On Jan. 13, as the stock dived another ¥30 to the woeful level of ¥7, JAL issued another statement. “Japan Airlines (JAL) and Mexicana (MX) announced today that they will expand their code-share partnership to cover new routes that will improve the connection between Japan and Mexico,” a press release said. “From Jan. 14, 2010, Japan Airlines will expand its services between Los Angeles and the Mexican city of León/Bajío (Guanajuato).”

Good news, yes, for Japanese going to Guanajuato. But again, it failed to cheer investors, who lost more than a billion dollars that day.

Finally, on Jan. 14, as the share price steadied between ¥6 and ¥10, JAL finally confronted the “restructuring” issue on its Web site with this artfully worded sentence in English: “Please be informed that Enterprise Turnaround Initiative Corporation (hereafter ETIC), a quasi sovereign turnaround fund, is in process of forming a business revitalization plan to support Japan Airlines, in which we intend to ensure all of its business operations on and off the grounds to be performed smoothly without any interruption as usual with sufficient amount of capital.”

More importantly, the statement assured “no changes on frequent flyer mileage.” As for the 460,000 investors who lost their shirts and/or kimonos, it promised “flight coupons issued for the shareholders are valid until the original maturity dates.”

Phew. Now we can relax. Our savings are gone, but at least we can fly to Guanajuato and get air miles for it.

Having gone 25 years without a crash, JAL, like the Japanese media cartels, will most likely weather the storm and continue smooth operations. Which makes me wonder: Why did The Source do this in the first place? Was he short-selling JAL into oblivion and buying uprising ANA and Skymark at the same time? Was he punishing Japanese seniors and Liberal Democratic Party cronies who milked the JAL cash cow for years? Or was he manipulating the media in order to force the government into sending another massive bailout his way? Unless 460,000 investors and 47,000 employees file a class-action suit against every reporter and editor covering the JAL saga, The Source will probably never be identified, his motives never revealed.

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