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Japan Airlines Confirms Talks, Job Cuts

JAL confirms talks with foreign airlines, will cut 14% of work force


TOKYO - Japan Airlines Corp. confirmed tie-up talks with foreign carriers and said it would slash its work force by 14% as the struggling carrier seeks to escape its long malaise.

Delta Air Lines Inc. and American Airlines parent AMR Corp. have been in separate talks with JAL in recent weeks to build stronger ties and potentially invest hundreds of millions of dollars in the unprofitable airline, according to people familiar with the matter.

Speaking briefly Tuesday, JAL Chief Executive Haruka Nishimatsu declined to disclose the identity of the other carriers but said he expects a mid-October deadline to conclude talks. He said his company is likely to choose just one partner, adding that this partner won't necessarily become the biggest shareholder of JAL.

Mr. Nishimatsu also said his company will seek to reduce its 48,000-strong work force by 6,800 employees in the latest round of job cuts. He added that JAL will pursue a "drastic" reorganization of its routes, though he declined to disclose details.

Mr. Nishimatsu's comments came after he met with an independent panel set up by the Japanese transport ministry to oversee the airline's revival. The cash-strapped carrier -- which has suffered along with other airlines from the global economic slump and slowdown in traffic -- is due to announce a revamp plan by the end of this month.

At a briefing to explain what was discussed at the meeting with the independent panel, an official at the transport ministry said the company seeks to reduce the ratio of its international flights to less than the current 50% of overall flights.

The restructuring plan is key for JAL to get fresh loans from banks, as it will have to persuade lenders that it can get back on its feet. Analysts estimate JAL may need as much as 150 billion yen, or $1.65 billion, in new funds in the second half of its fiscal year through March, on top of the 100 billion-yen loan partially backed by the government that it received in June.

In its fiscal first quarter ended in June, JAL reported a loss of more than $1 billion at current exchange rates as the softening economy added to older woes that include high costs and intensifying competition. It is predicting a net loss of 63 billion yen for the full business year ending in March.

The International Air Transport Association on Tuesday said the global airline industry faces $11 billion of losses this year, greater than forecast, as business travel remains in a slump and fuel prices are rising.

JAL is appealing as a partner for its lucrative trans-Pacific and Asian routes, which could be a major asset to the rival airline alliances that Delta and AMR belong to. Such alliances have become crucial, as they allow airlines to share passengers and the costs of operating aircraft and ground services. JAL is already a member of the oneworld alliance, along with AMR's American.

But government restrictions limit investment by foreigners to about one-third, and other airlines face their own headwinds and aren't likely to make enough of an investment to change the airline's fortunes.

JAL has already retrenched somewhat -- a particularly painful process for companies in Japan, where layoffs are politically unpopular. Its work force totaled nearly 54,000 workers five years ago. Over the same period, it has trimmed capacity, as measured by airline seats flown, by 15% as it has canceled routes, reduced flights and switched to planes with fewer seats.

Mr. Nishimatsu, a longtime company employee, has had some success shaking up the airline's bureaucratic culture. But the former government-run Japan flag carrier has hit hard times since striking out on its own more than two decades ago. In addition to the global traffic slowdown, its business also has suffered from Japan's long economic slide and from increasing competition from All Nippon Airways Co. and other, fleeter rivals. Internationally, its prominence has fallen as business travelers increasingly turn to China and other faster-growing Asian nations.

The airline has been unprofitable for four of the past seven years. Last fiscal year, it flew 83.49 billion revenue passenger kilometers, a common industry measure of traffic. Four years earlier, it flew more than 102 billion.

JAL confirms talks with foreign airlines, will cut 14% of work force
JAL Chief Executive Haruka Nishimatsu / Image via


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