JAL emerges from bankruptcy, faces major demand drop

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Published: March 29, 2011

Japan Airlines 767. Photo: Courtesy, Boeing.

Japan Airlines on Monday completed its court-monitored bankruptcy restructuring under Japan’s Corporate Rehabilitation Law, and also announced more flight reductions as it contends with a steep drop in demand in the aftermath of the March 11 earthquake and tsunami crisis that devastated the country.

The company completed full repayment of reorganization claims amounting to ¥395.15 billion ($ 4.86 billion) with the approval of a Tokyo court, and also announced it has raised ¥254.96 billion from 11 financial institutions. The state-affiliated Enterprise Turnaround Initiative Corp. of Japan has injected ¥350 billion into the airline, effectively becoming its owner until a planned IPO next year (ATW Daily News, Dec. 1, 2010). The restructuring finalization includes a ¥521.5 billion debt waiver from financial institutions including the Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group and the Development Bank of Japan. 

The court-approved restructuring plan requires the layoff of 16,000 staff by March 31, the disposal of 103 aircraft and the scrapping of 49 routes. JAL said it is on track to meet those requirements, and additionally is forced to cut frequencies and aircraft size due to the fall off in traffic following the earthquake.

President Masaru Onishi revealed Monday that JAL’s international traffic is down 25% while domestic traffic has dropped 28% compared to March 11-27, 2010. “We cannot be optimistic” about traffic, he said at a news conference Monday, adding that “concerns and uncertainty about the nuclear power plants” are driving down demand. JAL will cut 74 weekly flights on 11 international routes and downsize the aircraft used on two routes for April.

Meanwhile, the airline is once again considering establishing a domestic LCC through a joint venture with Australia’s Jetstar, according to a Nikkei report. The move was discussed for much of last year, but in October JAL Chairman Kazuo Inamori poured cold water on the concept, telling media he had reservations about delving into discount airline operations (ATW Daily News, Oct. 27, 2010). “I think we should refrain from chasing after scale expansion,” he said. “Look at the US example, where many low-cost carriers that entered the market have since exited.”

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