JAL faces more losses as retirees fight cuts

Two-thirds of former employees must agree to pension reduction

by Chris Cooper and Kiyotaka Matsuda

Bloomberg

Takahiro Fukushima gets a pension of ¥2.7 million a year from Japan Airlines Corp., where he worked for 35 years. Two months ago, the unprofitable airline sent the former cabin attendant a letter asking his permission to cut it by more than 50 percent.

“The shock was huge,” said Fukushima, 67, who joined the carrier in 1966. “In the beginning, JAL even didn’t want to hold meetings to explain it.”

Fukushima joined with other retirees to oppose the cuts, which need approval by two-thirds of the pensioners to be enacted. The Tokyo-based airline has already factored in a one-time gain of ¥88 billion from reducing the pensions into its annual forecast and failure to cut the payouts may more than double its loss this year.

“Without the gain from a revision of the pension fund, JAL will have a loss of more than ¥150 billion,” said Yasuhiro Matsumoto, an analyst in Tokyo at Shinsei Securities Co. “It has little room for further cost-cutting.”

As of Friday, more than 3,000 of the approximately 9,000 ex-employees have said they are against the troubled airline’s proposed pension reduction, according to a Web site run by the carrier’s pensioners. The objections of 3,000 pensioners would be enough to scuttle the plan.

The airline has yet to make a decision, and despite the objections it is still uncertain if the opposing retirees can muster enough support to defeat the plan. According to a company spokesman, the airline, which is focused on getting the necessary two-thirds support, will continue its efforts.

The carrier had ¥95 billion in accrued pension and severance cost liabilities outstanding at the end of March, according to its financial results.

JAL President Haruka Nishimatsu has slashed more than 5,500 jobs from the carrier since taking over as head in 2006 by selling stakes in subsidiaries and offering early retirement. The reductions exceed the 4,300 jobs targeted in the carrier’s midterm plan announced in February 2007.

“The retirees need to stomach a cut in pensions,” said Shinya Izumi, a Liberal Democratic Party Diet member who chairs the party’s aviation panel. “Nishimatsu has done a good job managing JAL.”

The airline is predicting a loss of ¥63 billion this fiscal year as sales plummet amid the global recession. The carrier has announced plans to cut operating costs by ¥195 billion. The cost cuts aren’t enough to make up for its predicted ¥203 billion drop in revenue.

JAL last month won a loan of ¥100 billion from the state-owned Development Bank of Japan and other Japanese lenders after it laid out plans to reduce costs to cope with the biggest slump in international travel since SARS and bird flu led people to shun overseas trips in 2003.

“It’ll be very worrying if JAL doesn’t get agreement to cut pensions,” said Ryota Himeno, an analyst at Mitsubishi UFJ Securities Co. “They’re already burning through shareholders’ equity.”

The carrier had ¥197 billion in shareholders’ equity at the end of March, a drop of 58 percent from the ¥471 billion a year earlier. Smaller rival All Nippon Airways Co. had ¥326 billion in shareholders’ equity at the end of March.

The airline is suffering from tumbling demand for international travel amid Japan’s deepest postwar recession. The carrier flew 12.4 percent fewer people internationally last fiscal year, its biggest drop in five years.

The carrier has been affected more than ANA from the slump in overseas travel as international travel is the biggest part of JAL’s aviation business.

JAL had ¥704 billion in revenue from international travel in the year that ended on March 31, more than double ANA’s ¥291 billion. In comparison, domestic passengers at JAL declined 1.8 percent last fiscal year.

The International Air Transport Association last month predicted airline losses worldwide may total $9 billion this year as the swine flu pandemic compounds the effects of the global recession. The drop in travel demand has also caused losses for Cathay Pacific Airways Ltd. and Korean Air Lines Co.

“I’ve asked JAL for a detailed management plan quickly,” transport minister Kazuyoshi Kaneko told reporters last week. “It’s the president’s responsibility to push through the pension cuts.”

ANA, predicting a return to profit this fiscal year on cost reductions of ¥73 billion, is down 22 percent after earlier this month saying it would sell new shares to raise money for planes.

Japan’s pensioners also receive payments from the government. The average payout from the state is ¥1.9 million a year, according to figures from the health and welfare ministry. Pensioners at ANA receive average payouts of between ¥3 million to ¥4 million a year, including the government part, according to spokesman Rob Henderson.

“JAL is losing money because of its international routes,” Fukushima said. “It’s got nothing to do with pensions.”

Information from Kyodo added