JAL Alters Course, Aims To Scrap 16 Loss-Laden Routes By June

TOKYO (Nikkei)--Japan Airlines Corp. plans to revise its current flight overhaul plans to first eliminate by next June a total of 16 domestic and international routes that are bleeding red ink, The Nikkei learned Sunday.

The beleaguered airline operator, which is seeking business rehabilitation support from the Enterprise Turnaround Initiative Corp. of Japan (ETIC), seeks to discontinue eight international routes, including flights between Narita airport and Mexico, as well as eight domestic routes, such as a link between Tokyo's Haneda airport and Kobe airport.

JAL's board is expected to approve the plans this week for submission to the Transport Ministry.

On Sept. 15, JAL submitted a business improvement plan to the ministry calling for the elimination of 50 money-losing domestic and international routes through the end of fiscal 2011. A task force reporting to Transport Minister Seiji Maehara later revised the number to around 45 routes. But with ETIC slated to spearhead the turnaround process, JAL's plans were sent back to the drawing board.

By presenting a fresh route-reduction proposal, the airline hopes to underscore its commitment to the rebuilding process and quickly draw on ETIC's support.

(The Nikkei Nov. 2 morning edition)

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Convincing Explanation Needed For JAL Aid: Fujii

TOKYO (Dow Jones)--Japan's finance minister Hirohisa Fujii said Sunday that convincing and satisfactory explanation to the people is necessary when considering the use of public funds to bail out struggling carrier Japan Airlines Corp.

In his appearance on a TV program Sunday, Fujii said the government "must follow the dictates of public common sense and the transport minister Seiji Maehara also understands this point."

His comments came at the time the government is putting together a turnaround plan for the ailing airline. Fujii said Friday that Maehara has yet to inform him on how the government should help JAL, or whether it will use public funds to help rescue the carrier.

The airline, Japan's biggest airline by revenue, is coming under increased scrutiny, as observers say much remains to be done. For the fiscal year ending March, JAL, formerly state-owned but privatized in 1987, is predicting a massive net loss of Y63 billion, as it struggled under surging jet fuel prices and slumping travel demand.

Observers also cite tardiness in JAL's shifting from a high cost structure. In addition to withdrawing from unprofitable routes and payroll cutbacks, a drastic reduction in pension-related liabilities, partly in the form of payment to retired workers, is inevitable. That is a necessary step which JAL creditor banks are strongly asking for and is a reminder that correcting the high cost structure was the beginning of General Motor Corp.'s revival.

Fujii didn't specifically mentioned what steps are necessary. But his comments suggest that the government is well aware of criticism about JAL's pension structure, which is squeezing JAL's financial standing and is considered as a major hurdle for JAL's revival plan.

A task force appointed by the transport minister is seeking a Y300 billion capital increase with public and private-sector money. In addition, the task force has asked JAL's main creditor banks to waive loans and consider debt-for-equity swaps totaling Y250 billion.

The task force's various restructuring proposals have involved the public purse despite Japan's already bulging budget deficit. JAL's lenders are balking at the financial aid, because such an assistance eventually may be used to maintain high level of JAL's corporate pension benefits.

Separately, the Nikkei reported in its Sunday morning edition that Japan's government has decided to use the state-backed turnaround body to help restructure JAL, in a move that underscores the government's commitment to JAL's revival.

Without quoting sources, the paper said the Enterprise Turnaround Initiative Corp. of Japan (ETIC) will lead JAL's turnaround, aimed at cutting back JAL's excess debt. The government will also put together a new, drastic restructuring plan including public fund injection and a substantial reduction in pension-related liabilities, the Nikkei said. The government cabinet ministers will likely discuss and confirm the policy as early as later this week, the paper said.

Government officials were not immediately available for comments.

The turnaround body will also provide bridge loans to JAL to eliminate credit concerns about JAL among other steps, the paper said.

ETIC, which is jointly funded by the government and private-sector financial institutions, has kicked off operations earlier this month to provide support to companies with excess debt but potential for future revival. The turnaround body, which will have a life of five years, is capable of raising up to Y1.6 trillion in government guaranteed funding.

Kyodo News reported Saturday that JAL has decided to reduce its group workforce by 13,000 by the end of March 2015, 4,000 more than its initial plan. A JAL spokesman declined to comment on the report, adding that the report is not based on what the airline has announced.

Meantime, JAL remains in contact with Delta Air Lines Inc. (DAL) and AMR Corp.'s (AMR) American Airlines over a possible alliance that could see one of the two U.S. carriers taking a small stake in Tokyo-based JAL.

Though it already raised Y100 billion last June to cover daily operating costs, analysts estimate JAL may need up to Y150 billion in new funds in the second half of the fiscal year through March 2010 just to keep its jets in the air, even without considering ways to tackle its debt pile.

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Is JAL's Rehab Plan Headed Back To Square One?

TOKYO (Nikkei)--With the Ministry of Finance and major lenders adopting a tough love stance with Japan Airlines Corp., the latest business turnaround plan proposed for the financially strapped airline operator will need to be significantly revamped.

In June, the MOF, the Development Bank of Japan and other lenders supplied JAL with 100 billion yen in loans, about half the amount sought by the airline. Because of the tacit understanding at the time that the Transport Ministry would take responsibility for placing JAL on a recovery track, the hurdles placed before the company's efforts to secure additional assistance have been high.

The task force directly reporting to the transport minister released its latest rehabilitation plan earlier this week, only to be met by opposition from groups with varying vested interests. The proposed measures focus on eliminating JAL's negative net worth, which is estimated at nearly 250 billion yen. But to do so, the airline would have to improve its finances, beginning with a sharp reduction in its pension liabilities.

But the MOF, which would oversee the financial aid to JAL, and the carrier's top creditor, the DBJ, believe the plan to be unworkable, thereby limiting the government's ability to infuse public funds into the airline.

As a result, the available options appear to be narrowing. Some government officials have begun looking into the possibility of providing support to JAL through the Enterprise Turnaround Initiative Corp. of Japan, which is funded by both the government and private-sector financial institutions. If this path leads nowhere, JAL could be forced to consider bankruptcy proceedings.

(The Nikkei Oct. 17 morning edition)

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Ministry, Main Lender Deem JAL Rehab Plan Unworkable

TOKYO (Nikkei)--The Ministry of Finance and the Development Bank of Japan contend that the latest turnaround plan drafted for Japan Airlines Corp. will be difficult to implement, The Nikkei learned Friday.

The plan, presented to Transport Minister Seiji Maehara Tuesday by a task force overseeing the carrier's rehabilitation efforts, calls for debt waivers from creditor banks.

The MOF and JAL's main lender, the DBJ, support measures that would sharply streamline the financially strapped airline's operations and shake up its management. But they also believe the plan itself may not be feasible given the difficulty in slashing the carrier's pension liabilities.

Under the plan, JAL's 330 billion yen in pension liabilities will be reduced to 100 billion yen. But achieving this would have to be approved by retirees and others.

Also, calls for the work force to be reduced by 9,000 to 10,000 personnel over three years are expected to face strong opposition from JAL's labor unions.

The MOF and the DBJ will urge the task force and the airline to continue pursuing turnaround measures initiated by the company, while pressing for drastic steps to deal with its liabilities.

Meanwhile, a growing number of government officials believe that JAL should rebuild under the Enterprise Turnaround Initiative Corp. of Japan, a newly established organization funded by both the government and private-sector financial institutions.

The turnaround body could play a key role in helping to arrange debt waivers and other steps to make the process as smooth as possible. Such an arrangement would enable JAL to reap debt-waiver-related tax incentives, while allowing financial institutions to upgrade loan categories for the airline to "sound."

The task force will hold unofficial discussions with the DBJ and other creditor banks as early as Sunday.

(The Nikkei Oct. 17 morning edition)

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JAL Heading Back To Drawing Board With Resort-Flight Business

TOKYO (Nikkei)--Japan Airlines Corp. will suspend a previous plan to sell interests in its resort-bound flight operations and instead consider other options, such as establishing a business cooperation with low-cost carriers, The Nikkei learned Thursday.

The financially strapped airline had originally planned to ask JTB Corp. and other major travel agencies to take stakes in wholly owned unit JALways Co., which flies to such resort destinations as Hawaii, Australia and Thailand. JAL had planned to use proceeds from the transaction to repay loans and procure planes.

But a task force reporting to Transport Minister Seiji Maehara that is overseeing JAL's rehabilitation has called for a tighter focus on routes used heavily by business travelers. The resort-bound flights would then be operated through partnerships with low-cost carriers in Asia.

With the task force's recommendations in mind, JAL will stop preparations for the sale of its JALways shares.

The carrier will also re-evaluate its plan to sell baggage handling firm JAL Ground Service Co. The results of an in-house assessment showed that without major streamlining measures, the sale of the business would not generate any profit.

The proposed sale of JAL's holdings in airline caterer TFK, however, is still being considered.

(The Nikkei Oct. 16 morning edition)

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Kansai Travel Agencies Spooked By JAL Rehab Plan

OSAKA (Nikkei)--Travel agencies in the Kansai region of western Japan are not at all happy about the rehabilitation plans for Japan Airlines Corp., as the envisaged reductions of JAL flights from the area would play havoc with the overseas package tours they plan to offer.

The airline's plan as of September was to end or suspend service for nine international and five domestic routes from Kansai International Airport near Osaka, as well as end services from Kobe Airport.

However, a draft rehabilitation plan announced Tuesday by the task force under Transport Minister Seiji Maehara calls for JAL to also reduce flights bound for resort destinations.

The announcement came as a shock to tour organizers that plan to launch package tours in spring and beyond.

For international routes, travel agencies would take a greater hit from the reduction of JAL flights to Southeast Asia than they would from fewer flights to South Korea and China.

The airline plans to stop direct flights from Kansai International to Singapore by the end of fiscal 2009. Currently, Singapore Airlines and JAL each offer one direct flight a day from Kansai International to Singapore. When JAL ends such flights, the number of seats available for the route would be halved, which could force travel agencies to arrange chartered flights or use indirect routes for their tours. Indirect routes are not only less convenient, they also tend to be more expensive than direct flights.

Furthermore, there are concerns in the industry that the disappearance of a competitor on certain routes could cause the remaining airline to increase ticket prices.

Another route JAL plans to pull up stakes on is the one linking Kansai International and Denpasar on the Indonesian island of Bali, a move that would happen by the end of fiscal 2011.

The carrier has been flying to Denpasar from the Kansai airport almost daily throughout the year, while Garuda Indonesia offers three flights a week between the destinations.

Package tours to Bali are relatively inexpensive and one of the more popular products. However, fewer flights may cause travel agencies to lose opportunities to organize package tours during the summer-vacation and other high seasons.

Another blow to travel agencies would be the planned abolition of JAL flights from Kansai International to Hanoi -- flights with which the Japanese carrier has a code-sharing arrangement with Vietnam Airlines.

The airline's planned withdrawal from Kobe Airport is also a cause of concern among travel companies. Around half of the morning flights out of the city are operated by JAL, which services Tokyo, Sapporo and Okinawa.According to Sanyo Air Service Co., a Kobe-based travel agency, the loss of morning flights would be painful for travel agencies, because such flights enable them to arrange tours that help travelers make the most of the day.

-- Translated from an article by Nikkei Staff Writer Yoshie Jingu

(The Nikkei Marketing Journal Oct. 16 edition)

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Without Creditor Support, Latest JAL Rehab Plans Will Not Fly

TOKYO (Nikkei)--The latest restructuring measures under consideration for Japan Airlines Corp. go a step further than previous proposals, but with creditors deeply suspicious of the task force compiling the plans, negotiations could turn acrimonious.

The proposed measures aim to clarify what constitutes JAL's core operations and then ask financial institutions, current employees and retirees to all share the burden of rebuilding the financially strapped airline. Compiled by a government task force overseeing its rebuilding efforts, the rehab plan would entail JAL's transformation into a leaner and meaner airline that focuses on routes used heavily by business travelers.

And in exchange for streamlining its operations, JAL is to seek assistance from its financial institutions totaling 300 billion yen in debt-for-equity swaps and loan waivers.

Without such drastic measures, JAL is poised to incur an operating loss of more than 190 billion yen in fiscal 2009, according to the task force. By adopting the proposal rehab steps, however, the airline operator would be on track to eventually recover an operating profit of around 50 billion yen.

Creditor banks, however, appear unconvinced so far. On Tuesday, senior executives representing JAL's biggest lenders, such as the Development Bank of Japan, refrained from commenting on the terms of the rehab plans. With the request for debt assistance at a whopping 300 billion yen and subsequent fundraising plans unclear, creditors believe that the prospect of JAL's full recovery is still uncertain. The DBJ, which holds the largest loan claims, is strongly opposed to the plans.

While the debt relief plans did not elaborate on whether taxpayer money would be used for the capital increase, JAL creditors believe that public funds will be necessary to shore up the company's finances. But it is unlikely whether the Democratic Party of Japan-led government would back the use of taxpayer money. Among the options available include a business rehab under an existing industrial revitalization law or assistance under a newly established entity to help support corporate improvements.

The possibility of using a privately mediated workout to shore up JAL is also making the creditors nervous, given this method is designed to protect shareholders and bondholders in exchange for placing a burden on banks. Even if JAL's big lenders agree, smaller banks with loan claims may oppose such plans.

Some JAL officials and employees are also said to be unhappy about losing control of the rehab effort to the task force, which is spearheading the process. And to be able to implement corporate pension reforms, such as steep cuts to pension payouts, at least two-thirds of retirees need to give their approval.

The task force, however, is not backing down and plans to negotiate aggressively by citing the possibility of legal proceedings, such as a bankruptcy filing. But whether the latest round of measures can win the support of creditors and JAL retirees is still up in the air.

(The Nikkei Oct. 14 morning edition)

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JAL Turnaround Task Force Seeks Y300bn In Debt Relief

TOKYO (Nikkei)--Japan Airlines Corp. is expected to ask creditors for debt relief totaling 300 billion yen, including debt-for-equity swaps and loan waivers, under a plan compiled by a task force overseeing its rehabilitation efforts.

The financially strapped airline operator will negotiate with creditors about the proposed measures and then draw up a tentative business rehab plan later this month. The details will likely be finalized by around the end of next month.

The government task force, which directly reports to Transport Minister Seiji Maehara, says that JAL's liabilities exceed its assets by at least 250 billion yen. Under the proposed plan, JAL would seek 250 billion yen in debt waivers and 50 billion yen in debt-for-equity swaps to eliminate the negative net worth. Separately, JAL would seek up to 480 billion yen in fresh funding by next March, including 150 billion yen through a capital increase.

In exchange, the company would slash its roughly 330 billion yen underfunded pension obligations to 100 billion yen by cutting pension payouts to retirees and current employees in half. JAL would also be required to reshuffle its management by replacing current President and Chief Executive Officer Haruka Nishimatsu with an outsider. A chief operating officer would be tapped from within the company.

On the operational front, JAL would be forced to slash its work force and unprofitable flights, while bringing more efficient, smaller planes into its fleet. The airline is likely to focus on routes used heavily by business travelers.

(The Nikkei Oct. 14 morning edition)

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Japan's Reward Point Market To Exceed Y1tln In FY09

TOKYO (Nikkei)--More than 1 trillion yen worth of shopping points will likely be issued in Japan in the current year through March 2010, with more businesses offering rewards programs for a wider range of products and services.

A reward point card from Yodobashi Camera Co. With more products and services purchasable via reward points, these plastic cards are now as good as cash at many stores and online.

According to Nomura Research Institute estimates, nearly 790 billion yen of points were electronically issued at a minimum in fiscal 2008 by stores, credit card companies, airlines and others. The estimated total reaches roughly 820 billion yen with the addition of point rewards issued by Culture Convenience Club Co. group rental DVD and CD stores, as well as virtual malls run by Rakuten Inc. and Yahoo Japan Corp.

With the government earmarking roughly 290 billion yen for its eco-point economic stimulus measure, the total for fiscal 2009 is expected to exceed 1 trillion yen -- equivalent to about 1.5% of the 72.2 trillion yen in cash in circulation as of June.

Aiming to leverage the popularity of point programs and fence in customers, some companies have tied up with others and made their points more useful.

For example, Yamada Denki Co., a major consumer electronics discount store chain operator, has created a virtual mall by joining forces with Takashimaya Co., Ryohin Keikaku Co., and 220 or so other firms. Shoppers at the virtual mall receive points from both Yamada and the virtual store operators from which they make their purchases.

Yamada has also tied up with All Nippon Airways Co. and other firms to allow one company's points to be exchanged for points from another.

Bic Camera Inc., a major rival of Yamada, lets its points be converted into East Japan Railway Co.'s Suica e-cash.

Yahoo Japan points are expected to become exchangeable for Seven & i Holdings Co.'s nanaco electronic money this autumn.

(The Nikkei July 30 morning edition)

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UAE carriers challenge Canada ruling

Emirates Airline is fighting attempts by the Canadian government to limit both its and Etihad's access to the country, Gulf News has reported. Under Canada’s “open skies” policy, foreign carriers are supposed to be actively encouraged to begin services to Canadian destinations. The UAE-based airlines however, are currently limited to a combined six flights a week from the UAE to Toronto. “This is a matter between the two governments, although Etihad has made no secret of the fact that it would like to increase the number of flights between Abu Dhabi and Canada,” an Etihad Airways spokesperson told Gulf News.

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Singapore Airlines Tops Satisfaction Ranking

TOKYO (Nikkei)--Singapore Airlines won top honors in a Japanese customer satisfaction ranking for the second straight year, taking the No. 1 spot in five out of six categories, according to data released by Recruit Co.

The only category in which the Southeast Asian airline did not receive the best score was entertainment, in which it ranked second after Virgin Atlantic Airlines, the No. 2 airline in the ranking.

Placing third overall was Taiwan-based Eva Airways, while last year's third-ranked Emirates Airlines, based in the United Arab Emirates, plunged to 14th, possibly due to the diminished popularity of Dubai as a tourist destination, according to Recruit.

Japanese airlines scored well in the category of customer service, with All Nippon Airways (ANA) Co. placing second and Japan Airlines (JAL) Corp. third in the subcategory of service offered by flight attendants. ANA maintained its previous year's ranking of fourth overall, while JAL jumped from 13th to sixth.

As for the ranking of service provided by airport staff, ANA took second, while JALways placed third.

Japanese airlines were weaker in food, a category in which none made the top 10.

The survey, which covered 40 airlines, was conducted online from May 22-27, covering a total of 4,000 Japanese passengers selected randomly.

(The Nikkei Marketing Journal July 22 edition)

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