FOCUS: JAL's bankruptcy: road to salvation or merely life support?+

TOKYO, Jan. 19 Kyodo -
The bankruptcy of Japan Airlines Corp., once a proud symbol of the nation's
success, marks a long-overdue break from the carrier's troubled history of
stopgap bailouts -- and much of the credit for this is being given to the
government led by the Democratic Party of Japan.
But it has also been a process fraught with uncertainty, flip-flops and vested
political interests as the new government scrambled to win public support for a
massive injection of taxpayers' money to execute a court-led rehabilitation of
JAL.
And the bigger challenge ahead, which some commentators say could potentially
ring the death knell for the DPJ, is whether the crippled flagship carrier can
map out a long-term growth strategy and revive itself as a globally competitive
player.
''Bankruptcy is in some ways the easy solution,'' Michael Wascom, managing
director in charge of international and government affairs at American Airlines
Inc., said in a recent interview with Kyodo News.
''There is no airline to my knowledge today that has returned itself to a level
of profitability and a level of global service by taking the path to
bankruptcy,'' he added.
Most market analysts welcomed JAL's filing for bankruptcy protection and said
the transparent court-led restructuring process would be the only option left
to drastically reform the company, which reported combined liabilities of 2.32
trillion yen together with two of its subsidiaries.
Many agree a prepackaged bankruptcy plan crafted by a state-backed turnaround
body would have been unlikely under the Liberal Democratic Party, which was
tossed out of power last August after half a century of almost uninterrupted
rule.
''It was a measure that would have been necessary at some point in the future
and it was finally done thanks to the DPJ-led administration,'' said Yasuhiro
Matsumoto, senior analyst at Shinsei Securities Co. ''If JAL recovers fully, it
would be a huge achievement for the DPJ.''
Decades before the global economic crisis tore into its bottom line, the
company had long been bedeviled by safety problems, factional infighting,
wasteful spending on hotels and other non-core businesses, and a high-cost
structure embodied by generous pension benefits.
On top of the problems it caused for itself, JAL, which was fully privatized in
1987, has in many ways been a victim of flawed government policies that have
forced the airline to retain loss-making routes to near-empty airports built
around the country under LDP rule.
''It would have been difficult for the LDP to dig deeply into JAL's problems
since that would have exposed its own (failures),'' said Ryota Himeno, a
transportation analyst at Mitsubishi UFJ Securities Co.
But for the new Cabinet led by Prime Minister Yukio Hatoyama, the JAL question
has also laid bare some of the DPJ's weaknesses, namely internal division and
backtracking on policies, which at times triggered a wild guessing game about
the carrier's future.
Soon after his appointment as transport minister in September, Seiji Maehara
ruled out court-led restructuring for JAL, but later retracted his statement,
causing heavy selling of the company's shares.
''We've really been pushed around in the past six months,'' said Hiroshi
Takiuchi, a 60-year-old JAL retiree and now executive officer at aviation
consulting firm Nippon Aviation Service Co. ''While the DPJ (policies)
repeatedly went astray, JAL's corporate value and marketing strength
declined.''
The government pushed for pension reform as the pillar of JAL's restructuring
to reassure voters that more public funds would not be pumped into the airline
-- which has in the past been given near-free access to emergency loans --
without deep pension cuts.
But the focus on the pension issue gradually fizzled out as divisions grew
between Maehara, who preferred JAL's out-of-court restructuring, and Naoto Kan,
then deputy prime minister and now also the new finance minister, who demanded
a more stringent, court-led measure, numerous sources close to the matter said.
''I think that as finance minister, he wanted to publicize (to voters) that
every effort was made to avoid placing a burden on the general public'' in view
of the upcoming House of Councillors election in the summer, a senior
government official said on condition of anonymity.
Even after JAL employees and retirees gave their approval for extensive cuts to
their pension benefits, the company's share price plummeted to a single digit
as markets became increasingly convinced that the carrier was near to
bankruptcy and delisting.
''There is quite a lot that has been lost during the period (the DPJ continued
to backtrack),'' Mitsubishi UFJ's Himeno said.
But what has been lost can be recovered, at least according to the government
and JAL's newly tapped chief executive.
The state-backed Enterprise Turnaround Initiative Corp. of Japan has asked
Kyocera Corp. founder Kazuo Inamori, a charismatic tycoon with a track record
of reviving struggling firms, to head a painful restructuring process that
would involve heavy cuts in jobs, unprofitable routes and overstretched
subsidiaries.
''It's possible to reform the cost structure by adhering to what has been done
in the past like downsizing routes, but it's not enough as a strategy to raise
the company's top-line growth,'' Himeno said.
JAL retiree Takiuchi added, ''The most important part, which is not being
mentioned, is how to bring back customers that have drifted away.''
A key development being closely watched is how JAL plans to expand its global
network and its foothold in Asia and other emerging countries with prospects
growing that it will switch to the global SkyTeam airline alliance led by Delta
Air Lines Inc., the world's largest carrier.
In the end, the real tragedy for Japan's top carrier and the country would be
if the turnaround process fails to unearth the root causes of the company's
troubles and it becomes subject once again to political whims.
''We need to establish the real reason for JAL's crisis and who was
responsible,'' 67-year-old JAL retiree Takahiro Fukushima said. ''Only regrets
will remain if we share the pain and the company is not fully reconstructed.''
==Kyodo
2010-01-19 23:26:02