Japan Airlines Corp.’s flight to profitability is running out of both time and fuel, and the passengers are catching on.

Despite posting a profit in the first half of fiscal 2006 — mainly a one-time gain from the sale of Tokyu Corp. and East Japan Railway Co. shares — industry watchers say the nation’s largest carrier must realize it’s in a crisis and do more to improve long-term profitability.

“This fiscal year will be the last chance for JAL to revitalize its business on its own,” aviation analyst Kazuki Sugiura said. “JAL has to earn profits from its regular business activities, not from selling its assets.”

A string of safety mishaps last year sent JAL’s passengers, especially domestic ones, into the seats of other carriers, including rival All Nippon Airways Co.

In August, JAL saw passenger numbers rise year-on-year for the first time in 14 months, raising hopes a recovery was in the works.

However, speculation began in early October that JAL would go bankrupt after reports emerged that the carrier was laden with excess liabilities if its off-the-book debts were counted, and that the Financial Services Agency was pressuring banks to downgrade their risk assessments on loans extended to the airline.

When the first reports came out Oct. 4, JAL investors promptly dumped the stock, sending its share price down to 220 yen from 232 yen at the day’s opening.

JAL President Haruka Nishimatsu branded the reports as groundless, but he shouldn’t have been shocked that his words had no effect: Shareholders were also disgruntled by the carrier’s June 30 surprise announcement that it planned a massive new share issue — two days after the annual shareholders’ meeting, where it kept quiet about the plan.

Predictably, rumors of a JAL management crisis have lingered.

Sugiura said management’s lack of transparency is crippling JAL.

“Investors are suspicious that JAL’s management is not disclosing information,” he said. “The gap between the officially announced business plan and the actual measures JAL has been taking is so big that investors are losing trust in JAL.”

The surprise announcement about the share issue, through which JAL raised 148 billion yen, triggered speculation that JAL had run out of options for raising badly needed funds, Sugiura said.

After shareholders slammed the move for diluting the value of their stockholdings, JAL’s share price sank to a year-to-date low of 197 yen.

JAL said a capital increase was inevitable as it plans to spend 754 billion yen to buy 86 new planes over five years to replace its large, aging fleet with smaller, more fuel-efficient aircraft.

However, market watchers have speculated that JAL needs to relieve funding pressure likely from the probable early redemption of 100 billion yen in convertible bonds by next March.

JAL is doing whatever it can to attain its goal of a 3 billion yen net profit for the year to March, including unloading stakes in other companies. But Sugiura said what JAL needs to do most is review its high cost structure again and streamline operations.

Transport ministry officials say JAL is on the path to recovery and its previous restructuring efforts, including the dropping of unprofitable international routes, are starting to pay off. In addition, JAL said Wednesday that a revised business plan including more cost-cutting and job cuts will be announced in early February.

What concerns government officials most, however, is that JAL tends to lose its sense of crisis as soon as it appears its business is turning around.

“JAL has long rested on its dominant position, while ANA has been working hard to unite as one to streamline its operations,” said one official who asked not to be named. “All JAL employees should share a sense of crisis.”

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