Struggling Japan Airlines Corp., following recommendations made by a task force of the transport ministry, has given up trying to reconstruct itself on its own and has put itself under virtually direct state supervision. Specifically, the Enterprise Turnaround Initiative Corp. (ETIC) of Japan, which began operating in October, will take the lead in resuscitating the airline. The government will establish a "headquarters" that includes Cabinet ministers concerned with helping JAL out of its crisis.
Pointing out that JAL flights account for about 60 percent of the flights in Japan and that, if JAL cannot fly, it will cause big problems for local economies, Japan as a whole and ties with foreign countries, transport minister Seiji Maehara stressed JAL's strong public character.
A reconstruction plan worked out during the days of the previous Aso administration was scrapped. With the new approach, the Hatoyama administration's ability will be tested. Since a large amount of public money is likely to be used, the government needs to fully explain to people JAL's situation and the measures the government plans to take. Public understanding is indispensable.
ETIC will evaluate the airline's assets, liabilities and profitability and decide whether government-guaranteed loans should be provided to the company. It is reported that JAL's capital needs to be beefed up by ¥300 billion.
JAL is considering abolishing 45 unprofitable domestic and international air routes and slashing its group workforce by nearly 9,000 people. The plan does not include a reduction in the number of pilots, and there is concern that as the government involves itself in JAL's reconstruction, the airline will face more pressure from local governments and politicians to retain unprofitable air routes serving their areas.
Banks are bucking pressure to forgive debts amounting to ¥220 billion. There is also the difficult issue of reducing large pension payments to retired workers — a necessary step to rectify JAL's high-cost structure. The task facing the government is enormous.
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