JAL hoping DPJ doesn’t cut loans

Party's union ties and wish to avoid ANA monopoly will likely see funding extended

by Chris Cooper and Kiyotaka Matsuda

Bloomberg

Japan Airlines Corp., the recipient of three government bailouts since 2001, will find out soon if the rules have changed.

The Democratic Party of Japan, which takes power Sept. 16, pledged to cut what the next prime minister, Yukio Hatoyama, called “wasteful” government spending. JAL, with ¥235 billion in loans from the state-owned Development Bank of Japan, likely will seek more aid after it submits a midterm business plan by Sept. 30, according to analysts.

“I think it’s wrong for the government to provide money to a private company,” said Hirohisa Fujii, the DPJ’s leading contender to become finance minister. “The question is where you draw the line.”

JAL, Asia’s biggest carrier by sales, posted a ¥99 billion loss in the first quarter, the most in at least six years, as business and leisure travel plummeted during the country’s worst postwar recession. The government set up a panel of legal and academic experts last month to help restructure the carrier, which has eight unions and posted losses in three of the last four years.

“The government will probably give more money to JAL,” said Mitsushige Akino, who oversees $645 million in assets at Ichiyoshi Investment Management Co. in Tokyo, which doesn’t own the stock. “The DPJ has close ties to labor, so it would be difficult for JAL to have mass layoffs.”

JAL President Haruka Nishimatsu is making a personal appeal to win customers. He stood outside one of the airline’s sales offices Friday with other executives and staff to hand out promotional leaflets and ask passersby to fly JAL.

“We’re in agreement with banks on the direction we’re heading in,” Nishimatsu told reporters. “We’re working on plans to reduce routes that are not financially viable.”

Sze Hunn Yap, a spokeswoman at JAL, declined comment on whether the carrier would apply for more financing.

The country’s unemployment rate reached a record 5.7 percent in July. JAL had 47,526 employees at the end of March, compared with 33,045 at All Nippon Airways Co., Asia’s second-largest airline by sales. JAL plans to cut 1,400 administrative jobs domestically, starting next month.

Hatoyama’s DPJ defeated the Liberal Democratic Party by a landslide Aug. 30, ousting the party that has governed for all but 10 months since 1955. The DPJ platform pledged ¥16.8 trillion in economic stimulus by 2013 on child care, corporate tax cuts and tuition aid, while eliminating ¥9.1 trillion in public-works spending.

JAL’s reorganization will be discussed in the Diet without “taboos,” Hiroyuki Nagahama, shadow transport minister for the DPJ and a member of the Upper House, said before the party’s election victory. He declined comment on possible aid for JAL after the DPJ’s success.

The carrier, privatized in 1987, gets more than half its airline business from international travel. JAL had a 25 percent drop in overseas passengers in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003.

The airline predicted a full-year loss of ¥63 billion and is forecast to lose ¥82 billion, according to the median of 12 analyst estimates compiled by Bloomberg. Globally, the airline industry may lose $9 billion this year, according to the International Air Transport Association.

JAL’s first-quarter loss has helped make it the worst performing stock in the Bloomberg Asia Pacific Airlines Index, with a 23 percent decline this year, compared with a 23 percent gain for the index.

“JAL needs to borrow another ¥100 billion at a minimum,” said Yasuhiro Matsumoto, a credit analyst in Tokyo at Shinsei Securities Co. “It is very difficult for the government to walk away from JAL.”

JAL plans to cut ¥195 billion in operating costs this business year by scrapping unprofitable routes, reducing fuel costs, lowering wages and shifting to smaller planes.

The carrier announced last month it was negotiating with shipping line Nippon Yusen K.K. to merge air-cargo operations by next April to cut costs. JAL also is considering reducing its stake in regional carrier Hokkaido Air System Co.

The airline is trying to persuade retirees to accept a cut in pensions that may exceed 50 percent, which JAL said would give it a one-time gain of ¥88 billion this business year. That gain is already factored into its forecast of a ¥63 billion loss this year.

More than 3,500 retirees out of approximately 9,000 intend to vote against the pension cut, according to an unofficial tally on a Web site run by The Committee to Consider the Revision of JAL’s Pension Scheme. That’s enough to block the cuts, as the Tokyo-based carrier needs a two-thirds majority to push them through.

JAL and ANA together account for about 90 percent of all domestic air travel within Japan. The DPJ will be forced to help JAL to avoid giving ANA a monopoly, Shinsei’s Matsumoto said.

“If it wasn’t an airline, it would go bust,” Matsumoto said.

“It’s difficult to have one airline dominate. The country needs at least two.”

ANA passengers up

Kyodo News

All Nippon Airways Co. said Thursday that the number of passengers on its group’s international flights grew 3.5 percent in August from a year earlier to 383,454, rising for the first time since February last year thanks to the removal of fuel surcharges.

The airline also attributed the rise to easing concerns over H1N1 swine flu, as well as the issuance commencing in July of tourist visas to Chinese individuals, which contributed to a 17.1 percent increase in passengers on Japan-China flights in August.

“There appears to be a recovery trend, although the pace is gradual, as slumping demand seems to have bottomed out,” ANA President Shinichiro Ito told reporters.

The airline said it expects the number of passengers using international flights to rise by 10 percent in September.

ANA also said it will launch a code-sharing flight connecting Tokyo’s Haneda airport and Beijing with Air China Ltd. on Oct. 25.