Japan Airlines Flies Into Turbulence in Working Out Rehabilitation Plan

April 19, 2010
JAL has until the end of June to present a rehabilitation plan.

JAL, which has until the end of June to present a rehabilitation plan, is currently envisaging withdrawing from a total of 47 routes -- 31 domestic and 16 international -- sometime after October, as well as trimming 16,452 jobs, nearly one third of its current group work force, by the end of fiscal 2010.

This plan, drawn up by JAL and the bankruptcy administrator Enterprise Turnaround Initiative Corporation of Japan, is more rigorous than the plan previously announced in January, when JAL filed for court protection to start rehabilitation.

The previous plan called for pulling out of a total of 31 routes and cutting 15,661 jobs over three years.

The airline group was hoping that the latest draft plan would gain support from commercial banks that can provide JAL with loans it badly needs to stay afloat. JAL President Masaru Onishi called it "a challenging plan among several simulated plans."

But the banks have been calling on JAL to further reduce its international operations that have been generating huge losses, sources familiar with negotiations said. Some are even calling for a complete pullout from international services or limiting operations to the growing Asian market, the sources said.

Unless the carrier works out a rehabilitation plan credible to them, the banks will be unwilling to lend money to JAL, which will soon require hundreds of billions of yen in fresh loans, the sources said.

But a senior JAL official said, "The banks are calling on us to make all routes profitable, but that would not allow us to fulfill our mission as a provider of public transport."

JAL Chairman Kazuo Inamori said, "If we were to pull out of international services, it would not be worth going to all the effort of rebuilding."

Transport minister Seiji Maehara, meanwhile, appears to be supportive of the banks' view, saying of the current plan, "There is a need to further explore it after considering the issues of demand and the global economy."

Proposals to pull out of domestic routes, meanwhile, have also met opposition from local governments who want to keep the routes open. Termination "will have a significant impact on the local economy," said Aichi Gov. Masaaki Kanda.

Many JAL employees appear willing to write off their employer, as seen in an unexpectedly larger number of employees filing for early retirement incentives that JAL began offering in March.