JAL does it "Their Way"

What a month it has been for Japan Air Lines!  Prior to the Japanese elections at the end of August, which swept Yukio Hatoyama and the Opposition Democrats to power for the first time in 54 years, JAL believed it was to be the recipient of a carefully crafted short-term financings package with the previous government.   

This left the normally conservative JAL with a serious problem, and as other carriers have already long ago realised – there were very few places to turn for funding.  So what is Asia’s largest carrier to do when it finds a new government that came to power on a promise to wean Japanese Corporations off of preferred public funds?

A Helping Hand

Well we did not have to wait long to find that other carriers were more than interested in lending  a helping hand.   From OneWorld partner American Airlines leading the charge to Tokyo, to SkyTeam’s Delta it suddenly seemed that there was ample opportunity for JAL to forge new partnerships.   Soon, some of the larger members of the major alliances were scrambling to put together a deal.  In that frenzy of activity, including AA’s major liquidity drive which found them with 2.9MM USD in cash for various strategic moves, a few finer points seemed to be being papered over.   To keen observers of Japan, none of these ovetures really seemed to fully add up.   From talk of mergers to liquidity buyouts it seemed as though the principals and the mainstream reports all but ignored some of the more practical issues with Japanese ownership laws, which make US foreign ownership rules look positively liberal.

I would not want to play chess with JAL

The whole affair also seemed to focus on the partnership possibilities and missed  some of the all important cultural cues that caused some to wonder if JAL were not just strategically playing their suitors.  Surely JAL has to know at the start that without a swift and unlikely change in Japanese law, at best, they could only accept well under 10% of any liquidity offer that included stocks and other securities.

Also surprising was the move by JAL’s potential suitors, as none of the carriers involved in the negotiations could actually be accurately described as in a position to throw a financial lifeline to a new partner.  Of particular mystery was AA/BA’s combined approach, with AA’s health only now beginning to stabilise and BA being self described as being in a “critical cash position”.  So tenuous is BA’s position that they recently asked staff to voluntarily forego a month of pay, or work a part-time schedule.  Delta is still wrapping up the final costs from it’s acquisition of Northwest Airlines.  So what was in it for them?   Access to the lucrative Japanese market and the coveted slots of Haneda were a good start.  Having a foothold in once of the densest markets in Asia was certainly another.

I did it ”My Way”

During the past month none of this ever really added up for us at TWC.  Now in the wake of the Japanese Government and the Japanese Development Bank’s latest promise of support and assistance, and the caveats that come with it, will JAL be able to navigate its way to clear air?  We would argue that while cultuarally Japanese companies, and their employees, still want to fulfill the covenant of lifetime employment, it is no longer practical.  It is a positive sign that  JAL make the hard choices that other carriers have already had to make in recent years.  I do not think that we should underestimate the pain and cultural complexity that they will have to negotiate while cutting the bottom line.   In many ways it will be harder than in the right-to-work culture found in the U.S.

So as JAL’s President steps down- some would say in less-than-honourable circumstances- the carrier is this month intensifying  the scale and depth of its voluntary restructuring.  Having been with three carriers who stared down insolvency, and two who succumbed, all I can think is no matter how hard the cuts, there is no replacement for charting your own voluntary course through these hard times.   I wish JAL nothing but luck as they do things “their way”.