EDITORIAL: Turning around JAL

The blueprint has been compiled to get Japan Airlines Corp., the flagship carrier that went bankrupt, back on its feet. JAL and its receiver, the state-backed fund Enterprise Turnaround Initiative Corporation of Japan, on Tuesday submitted a reorganization proposal to the Tokyo District Court following more than seven months of haggling with a syndicate of banks.

Rebuilding the airline's management will require reforming the high-cost foundation base that was a factor in bringing JAL to its knees.

It makes perfect sense, therefore, that the turnaround plan includes stringent measures, such as cutting 16,000 employees, or about one-third of the group's work force, while withdrawing from 45 domestic and international routes.

The resolve for sweeping reform also led lender banks to cut close to 90 percent of their financing, corporate bonds and other debt, followed by the injection of 350 billion yen ($4.16 billion) in public funds from the turnaround corporation. JAL must firmly adhere to this agenda.

Good fortune was also a factor in putting together the blueprint. With the world economy gearing up for a recovery mode, travel demand has also rebounded to a considerable degree.

JAL, for example, is projecting a return to operating profit for the current fiscal year.

Also advantageous were the coordinated bankruptcy procedures engineered through government support.

Under those arrangements, JAL has received government-guaranteed bridge financing that will enable it to replace its fleet of inefficient jumbo jets with new small and medium-size aircraft. This, likewise, smoothed the road to cost cutting.

But for JAL, the emerging business environment should not be viewed through rose-colored glasses.

The U.S. economy is clearly sliding, stoking fears of a slowdown in the global business scene. Uncertainty over the future of the aviation market has also heightened. Yet even if the business environment worsens, assumptions that additional government aid will arrive are not a viable option.

JAL can expect to experience increasingly fierce price competition not only from its main domestic rival, All Nippon Airways Co., but with overseas carriers as well. The Asian market, where JAL is staking its business survival, is awash with discount carriers from various nations adept at using low costs to make inroads.

But JAL should not descend into the realm of straight-out price competition. Its vital theme is the use of the quality of its services to sustain a competitive edge.

The first key for success in this plan is safety. Another forte enjoyed by Japanese airlines is their top global reputation for flying on schedule. Striking a solid balance between safety and precision on one hand and cost cutting on the other will be critical for success in the markets of Asia.

JAL must also move away from the sense of government dependence widely cited as a fundamental cause of its failure. The carrier says it is learning the ins and outs of private-sector management from its new chairman, Kazuo Inamori, the charismatic founder and honorary chairman of electronics maker Kyocera Corp., while promoting reforms in its business attitude.

That may be so, but uprooting a mind-set that has become so deeply entrenched in its corporate fiber cannot be achieved overnight.

It is essential for the JAL revival to be completed by the start of 2013, the deadline for receiving government assistance. At that point, the company will need to either return its shares to the market or search for a new sponsor.

Considering the current business climate and escalating competition, JAL's revival promises to be a furious battle against the clock.

JAL has no time to waste in revamping its organization and thinking, and then clearly show performance improvements to the public.

--The Asahi Shimbun, Sept. 1