EDITORIAL: Rebuilding JAL

The gargantuan task of rebuilding Japan Airlines Corp., the nation's ailing flagship carrier, with government support is now in full flight. On Tuesday, JAL applied for court bankruptcy protection under the Corporate Rehabilitation Law. The Enterprise Turnaround Initiative Corp. of Japan, a financing fund backed by both the public and private sectors, will also provide support.

This maneuver amounts to coordinated legal liquidation with state involvement. That is the same method used by the U.S. government last June in its efforts to begin rebuilding auto giant General Motors Corp.

It is the first time this approach has been tried in Japan.

JAL chalked up massive liabilities. Its business performance had reached the point that without government aid, the airline would have been forced to liquidate outright. Legal liquidation was the only available route for JAL as it seeks to restore its reputation and maintain safe operations.

Under the agreement, JAL's frequent flier program will be maintained. Jet fuel expenses and other transaction credits will be protected. This was unavoidable. Not doing so would have driven away customers. Fuel purchases would have been halted, and the company's aircraft would have been seized.

Under the rehabilitation plan, the entire JAL management team will step down. Also, 15,000 employees will lose their jobs. The corporate pensions of current and retired employees will be slashed drastically, while financial institutions will forgive more than 80 percent of the carrier's debt. JAL stock will be rendered worthless.

In this way, taxpayers will not be the only ones saddled with a substantial burden; stakeholders will also share the pain. Irrecoverable government-guaranteed financing from the Development Bank of Japan is projected to generate 44 billion yen (482 million) in public debt.

There is also the risk that government support will result in the public bearing a heavier load. Both the state and JAL must work to minimize that burden. In that sense as well, JAL cannot be allowed to retain its current bloated route network and service system. Exhaustive corporate restructuring is imperative.

Likewise, no hesitation should be shown in ceding certain parts of JAL's routes to other carriers. Government support must also not place All Nippon Airways, newly emerging airlines or other competitors at a disadvantage.

The combination of the Liberal Democratic Party's many years in power and deeply entrenched bureaucrats is also to blame for the decline in JAL's business fortunes. Due to these factors, excessive construction of new domestic airports continued unabated with the result that JAL was called upon to fly unprofitable routes. Over the years, that brand of aviation governance allowed a lax management style smacking of dependence on the central government to run its course.

JAL's new chairman will be Kazuo Inamori, founder and honorary chairman of electronics maker Kyocera Corp. Inamori is a business guru with close ties to the ruling Democratic Party of Japan. While he is certainly a charismatic entrepreneur who molded Kyocera to global prominence, he is no longer young at age 77. JAL cannot expect to rely upon Inamori's personal business skills alone.

Junji Ito, a former chairman of Kanebo Ltd., became JAL's chairman following the crash of a jumbo jet in 1985 in Gunma Prefecture that killed 520 people. Ito soon became entangled in internal and labor-management disputes, and was eventually forced to resign.

As this case indicates, it will also be important to eliminate factional conflicts and complex labor-management relations, elements said to comprise the very makeup of JAL. Progress on that front will require an infusion of talented people from both inside and outside the company's ranks.

In rising to the challenge of engineering a successful new takeoff, we urge JAL as an organization to reflect deeply on both its responsibility to the public and the lessons of the past.

--The Asahi Shimbun, Jan. 20