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IATA AGM: JAL plans mindset transformation

Japan Airlines (JAL) aims to transform in the coming months from a bureaucratic-entity into a carrier focused on its commercial aims and profitability.

"Historically, JAL was a government-run airline that was privatised. But it has not been able to part from history to the extent that it should have after privatisation. We need to change that mentality," says the carrier's new president and COO Masaru Onishi.

"There has not been much devotion to becoming a proper privately run company, and is the reason for some of our problems. We need to rethink our various business practices and models in order to become profitable once again."

JAL filed for Chapter 11-equivalent bankruptcy in January after posting a fiscal second quarter net loss of ¥32.1 billion ($351 million) and accumulating debts of ¥2.3 trillion. It had to ask the government for a bail-out, its fourth since 2001.

JAL COO Masaru Onishi, Billypix
 © Billypix

The state has pledged up to make up to ¥900 billion in funds available for the carrier, leading to the airline's creditors agreeing to forgive ¥730 billion of the airline's debt. In return, the carrier had to undertake a complete restructuring of its business and is due to submit a detailed plan to the courts by end-August.

JAL has since reaffirmed its commitment to the Oneworld alliance, and announced plans to drastically cut its network, revamp its employee pension plans, and end dedicated cargo operations.

Onishi, a long-time JAL executive who became president in late-January as part of a wide-ranging change in the airline's senior management, says that the Group could assess the viability of keeping on the other associated businesses.

"We are not looking to spin off anything directly related to the core passenger business, but that does not mean that we will not review it in the near future. But the JAL Group has a wide spectrum of associated businesses and the management could review that if necessary."

There has been criticism from those outside Japan that JAL should not be propped up by the government, and the country's other main carrier All Nippon Airways has publicly said that the aid was unfair. Onishi, however, points out that most of the money that it has received comes in form of commercial loans from financial institutions like government-linked Development Bank of Japan

"The aim is to complete the restructuring and get out of bankruptcy protection without using public funds. At this point, we have not touched public money and that will not come into play unless we absolutely need to," says Onishi.

Successfully completing the restructuring process will be crucial to that, although Onishi declines to be drawn into how long it would take. A major step was the announcement in end-April that JAL would stop operations on 15 international routes and 30 domestic one, reducing capacity 40% and 30% respectively from its 2008 fiscal year. Onishi, however, points out that the danger is taking the cuts too far.

"Downsizing is necessary in order to focus on the higher yield market and to increase the profitability, and we have announced the changes that we think are necessary. We need to make the company leaner to cope with a volatile market," says Onishi.

"However, we need to maintain the frequency on certain routes as we would otherwise compromise on the convenience for our customers and affect our competitiveness in the market otherwise. When we have reached a certain level of profitability, we can think about adding to our network."

Rationalising the airline's fleet will also help the airline to both cut costs and increase revenues. JAL plans to retire its 37 Boeing 747-400s and 22 Airbus A300s by end-March 2011. It has 68 Boeing aircraft that are due to be delivered in the coming years - 17 737-800s, nine 767-300ERs, seven 777-300ERs and 35 787s.

Onishi, says that the airline is considering the option of deferring some of these deliveries or changing the aircraft type. "We are in talks with the airframers, but what we have is already viable," he adds. "We have a plan for the future."

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