- Dec 28, 2005
- Total Time
September 16, 2009
Japan Airlines to Cut Routes and 6,800 Jobs
By HIROKO TABUCHI
TOKYO — Japan Airlines said Tuesday that it would cut 6,800 jobs, trim routes and quickly secure emergency funds from an overseas carrier, stepping up restructuring efforts amid mounting losses that threaten to pull the company under.
Delta Air Lines, the world’s biggest airline, and American Airlines are battling over a stake in Japan Airlines, which had a loss of ¥99 billion, or $1 billion, in the three months that ended in June.
Japan Airlines is also reportedly in talks with Air France-KLM and Korean Air Lines over investments amounting to several hundred million dollars, which would give the successful bidder a minority stake in the carrier.
Japan Airlines, the biggest carrier in the country, is struggling to stay afloat despite three government bailouts since 2001. It was hurt by a slump in air travel, the continuing weakness of the Japanese economy and what many analysts see as years of mismanagement.
On Tuesday, the president of Japan Airlines, Haruka Nishimatsu, said to reporters that the company would cut 6,800 jobs over three years and carry out a reorganization of its routes, many of which lose money.
He said the airline, known as JAL, aimed to conclude talks by mid-October on a tie-up with an overseas carrier, but declined to comment on a likely partner or how much JAL hoped to raise. He did not specify how many routes the airline planned to cut or change.
Japan Airlines hopes that a cash infusion from an overseas partner, as well as a drastic turnaround plan, will persuade its creditors to provide fresh capital.
The cash could also let the airline upgrade to newer, more fuel-efficient aircraft and turn around money-losing routes by teaming up with a new partner.
Meanwhile, JAL’s rivals are looking to expand abroad to tap a lucrative market in international business travel.
For Delta, a stake in JAL would add to its trans-Pacific and Asian routes and secure access to coveted berths at the busy Narita International Airport in Tokyo. But Delta is still integrating its $2.6 billion purchase of Northwest and it lost $1.05 billion in the first six months of 2009.
A Delta-JAL deal would hurt American, which could see its current code-sharing agreement with JAL canceled. American lacks a hub in Asia and is expected to bid hard to keep its ties with JAL.
An investment in Japan Airlines would be a high-stakes deal for any player in an industry exposed to wild swings in profitability. Moreover, equity ties between airlines have been rare, with carriers forging looser alliances like code sharing on flights.
An alliance with JAL could be beneficial for U.S. airlines in light of recent talks between the American and Japanese governments on a so-called “open skies” agreement that could open up trans-Pacific routes to greater competition.
Only two U.S. passenger airlines — Delta and United Airlines — are permitted to fly between Narita Airport and cities in the United States.
Despite the potential advantages for the bidders, analysts say that JAL needs to show it is serious about turning itself around if it is to ink a deal.
The company has already forecast a ¥63 billion loss for the current fiscal year, which ends next March. Although it recently secured ¥100 billion in government-backed loans, analysts say the airline needs at least ¥250 billion to get through the year.
JAL is mired in negotiations with its eight unions over staff and pay cuts, holding back the company’s restructuring efforts. The company’s holdings, which include a global hotel chain and credit card business, have also drained its resources. Meanwhile, the carrier is losing out to its rival, All Nippon Airways, on domestic routes.
“On one hand, it’s not a such an expensive purchase, considering the possible rewards,” said Yasuhiro Matsumoto, an analyst at Shinsei Securities. On the other, “nobody wants to invest in a company in such dire straits.”
Yiyi Jiang contributed to this report from Tokyo.