TokyoTomo Travel Guide

Following the application filed on January 19 by Japan Airlines Corporation, Japan Airlines International and JAL Capital for under the Corporate Rehabilitation Law, the Enterprise Turnaround Initiative Corporation of Japan (ETIC) announced an outline of its restructuring plan for Japan Airlines. The plan focuses primarily on the airline’s safe and stable flight operations on the premise that credits for commercial transactions and leasing fees obligations are protected. The other protections include the frequent flyer mileage and the complimentary coupons issued to its shareholders. The restructuring plan also includes the continued support by the government and the financial institutions. In terms of strategy for the turnaround plan, listed by the ETIC are “Further safety enhancements,” “Aircraft downsizing and Improving operational efficiency,” “Streamlining of workforce and organizational structures and Drastic improvement in flexibility” and “Establishing organizational structures allowing for prompt on-site decision-making.” By implementing these strategies, the ETIC, Enterprise Turnaround Initiative Corporation of Japan, aims for JAL’s major turnaround by March 2012, forecasting operating revenue of 1,358.5 billion yen with operating income of 90.4 billion yen to be achieved in March 2013.

Commenting on Japan Airlines’ present situation, Toshio Nakamura, Representative Director and CEO, the ETIC, pointed out that the airline had failed to make adjustments for its scale of business operations and organizational structures in response to the sluggish market demand due to “Excess fleet of large aircraft,” “ Unprofitable routes,” “Surplus workforce,” “Inflexible organizational structures” and “Delays in decision-making.”

With awareness of these burning issues, Japan Airlines aims, under the rehabilitation plan, to address downsizing of aircraft, withdrawal from the unprofitable routes, pursuit of the alliance benefits, streamlining of the workforce and build-up of organizational structures focusing on the on-site business operations. In regards to downsizing of aircraft fleet, the airline will retire all Boeing 747-400s together with aging aircraft MacDonnell Douglas MD-90s, replacing them with cutting-edge small and midsized aircraft including regional jets. A proactive introduction of new state-of-the-art aircraft will help improve fuel-efficiency and provide flexibility in aircraft availability.

While JAL will pull back “drastically” from the unprofitable routes, it will inaugurate new services on profitable routes. Overall, however, the routes will be substantially slashed. Compared to April 2009, the international routes will be reduced from 93 to 79 while the domestic routes will be decreased from 136 to 119 by April 2011. On the other hand, by leveraging the alliance benefits, JAL aims to secure its route network.

The JAL Group has approximately 52,000 employees in total including non-regular and temporary staff. In streamlining the workforce and the organizational structures, the airline will slash its present workforce to some 36,000 according to a decrease in overall capacity offer. Personnel costs will also be cut by reviewing drastically various allowances and the seniority-based wage system. Under the improved organizational structures allowing for the on-site decision-making, JAL endeavors to address build-up of an organization which allows flexible, timely and appropriate decision-making to meet any changes in the business environment. In order to support the new structure, JAL will invest in IT systems. The airline will also improve its personnel system in such a way that employees who achieve visible results will be promoted.

Also, the pending volume incentive scheme and kickback for travel agencies will be protected as commercial transaction credits which include verbal contracts concluded regionally by respective branch offices. In addition, also protected are credits for sales commission payable by JAL’s subsidiaries including JALPAK and JAL TOURS. During the course of the rehabilitation plan, the existing contractual relationship will be scrutinized, however.

Meanwhile, in order that Japan Airlines is able to concentrate on its core business, it will sell and liquidate the subsidiaries with the exception of aviation-related business including hotel and travel services and focus its corporate resources on aviation service which is the core business. As far as the pension scheme is concerned, now that two-third of the plan participants and pension recipients agreed to the revision of the pension system, Japan Airlines will revise the provisions therein and reduce the benefits according to the agreement reached subject to a final approval by the Ministry of Health, Labor and Welfare.

Source: Travel Vision

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