JAL launches corporate overhaul

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Just over two years after it took over former rival Japan Air System (JAS), the Japan Airlines (JAL) Group is planning a further corporate restructuring including large cuts in top management positions.

Asia's largest airline group admits it has too much "duplication" as a result of its complicated corporate structure. Alongside cuts to management layers, it aims to complete a "unification" of the group holding company with key business units by the end of the 2006/7 financial year to March 2007.

The main companies in the group are holding company Japan Airlines Corp, main airlines JAL International and JAL Domestic, and group sales company JAL Sales. "This structure has led to complications and duplications," the airline wrote in a memo to staff early in February. "Many employees have expressed their concerns and an in-house project team, which was established to review all aspects of the group's business and report to top management, picked up these comments."

Full details of the revamp are to be unveiled shortly when a medium-term four-year business plan through to 2007/8 is released, and JAL says final decisions have yet to be taken as it needs to further investigate "legal and practical issues".

Key to the revamp, however, will be the "unification" or "integration" of the holding company and the main business units and "one possibility is the creation of a new company incorporating the holding company and the two airlines". JAL adds that "the sales company may also be part of this new structure" and the intention is "to speed up decision-making and improve communication between head office and service branches".

Already decided is that in 2005 the JAL Group will reduce the number of board member and executive officer positions by 30%. At the moment, it has around 100 board members and/or executive officers. Also in fiscal 2005 salaries of board members and executive officers will be cut by 20-35%, while from the end of the current 2004/5 fiscal year, special retirement payments for these personnel will be abolished. In addition, corporate planning and marketing functions that are separated among group companies "will be unified to eliminate job duplication". JAL says the additional details will include "drastic business restructuring, cost structure reform, and measures for increased financial stability".

The group's challenge in recent years has been to remain consistently profitable, and this was one of the reasons it acquired JAS in 2002. JAS was primarily a domestic operator, while JAL earned much of its revenue from more volatile international operations, and it wanted to find a better balance. The enlarged JAL Group – the operational integration of JAS into JAL was completed early last year – has a share of the relatively stable domestic market of nearly half, which is roughly equal to that of rival All Nippon Airways. "Under a streamlined administrative structure, the new organisation will be capable of flexibly coping with the continued upheaval in the international business environment," says JAL.

The JAL Group suffered huge losses for the year to March 2004, as its international operations suffered from the effects of the war in Iraq and the SARS outbreak in key markets. It expects to report profits for the year to March 2005, however, with a net result of ¥23 billion ($220 million).

NICHOLAS IONIDES SINGAPORE