Posts Tagged ‘Japan’
“Open Skies” for Japan and U.S.
- The new agreement is historic, and will likely result in lower prices between the Japanese/US Market
The Headline: Two of the worlds largest economies liberalise air bi-laterals
- The Fine Print – Concessions and Quid Pro Quos
- Is it a Win/Win?
- Overall: A good news story
Coming in a close second in aviation headlines, behind the excitement of the first 787 taxi tests, was the news that over the weekend, Japan and U.S. reached a historic open skies agreement, which replaces the more restictive agreemnt put in place in 1952, and re-negotiated with limits in 1998.
This new agreement allows for an open bi-lateral between the two nations for the first time, with only a few caveats. I think the fact that the Japanese delegation chose to stay on beyond the 11 a.m. deadline on Friday was testament to how close an agreement was for both parties.
The Fine Print
Of course this was a negotiation, and as such there were some concessions. Japan’s request for ATI and Joint Venture (JV) fast-tracks for their carriers went unresolved. In my analysis the Japanese delegation was pragmatic about their ability to walk away with ATI agreements in hand, but have put in place contingencies in the deal on this key point. After all, any keen observer of the U.S. aviation sector could see that the long delayed AA/BA ATI applications has been held up for some time and there is little sign of hope inside the Washington beltway for progress.
What carriers on both side gain is a liberalisation on the ability to operate flights based on consumer demand, and the removal of some pricing restrictions. From the U.S. side, only four slots at the new Haneda (HND) were secured, and the window for their use is at off-peak night hours, where customer demand is yet to be measured.
Access to HND is good news for the US- but the Japanese still walk away no worse for the wear. Macquarie, JAL, and the other key shareholders of Haneda were not building the new runway and facilities as decor. The Japanese government in particular has indicated its desire to develop international, particularly Asian traffic, through this strategically placed airport.
Is it a Win-Win?
In our view, Japan may well have come out these negotiations in a slightly stronger position. Gaining unlimited access to US markets and still keeping premium time slots at HND and NRT or themselves- even if they gave the US an additional 15 minutes on their ops window. That is the headline- but the Japanese way would to be gracious and move along with their win.
What should the US be proud of? The lobbying pressure alone from the Texas Congressional
delegation on this at the Department of Transport (DoT) and Department of State (DoS) level has been intense- and impressive. It shows how very much the US wanted this to be a US “win”. With Oberstar desire to muddy the waters on the powers of the Department of Justice (DoJ) and DoT to take independent ATI decisions- the power of the TX delegation becomes very important. What will we do if/when Hutchinson leaves her seat? She is one of the airlines, and consumers, best mates in DC. Regardless of what I think of the rest of her politics, she is good for US Commercial Aviation.
Overall it is good news for two of the largest, developed, economies
So overall, a good week for Japanese-American relations; There is no reason why two of the largest developed economies in the world should have open bi-laterals and to this observer- this is nothing but positive news for both Prime Minister Hatoyama and the Opposition Democrats, as well as the Obama administration.
JAL charts an independent course to find clear air
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”.