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Japan Airlines

JAL may need to find outside CEO to win debt-forgiveness from lenders

Chris Cooper and Kiyotaka Matsuda  Oct 20, 2009

Japan Airlines Corp. may need to find an outside chief executive officer to win debt-forgiveness from lenders and a fourth state-bailout since 2001.

President Haruka Nishimatsu, a 37-year company veteran, has been asked to quit by a government-appointed restructuring panel as part of a possible deal with banks, a person familiar with the situation said earlier this week. Japan Air spokesman Satoru Tanaka declined to confirm or deny whether Nishimatsu would go.

Nishimatsu, 61, failed to win backing from Japan’s new government and lenders for the carrier’s own turnaround plan, as it didn’t include enough fundraising or cost cuts. Asia’s biggest airline may now follow Nissan Motor Co. in appointing an external candidate to eliminate more jobs and form a possible capital alliance with Delta Air Lines Inc. or American Airlines.

“No one internally in the airline could do the job that needs to be done,” said Jim Eckes, managing director of Hong Kong-based Indoswiss Aviation, which advises airlines. “They need someone like Ghosn.”

Brazilian Carlos Ghosn slashed excess capacity, costs and workers at Nissan, helping the previously unprofitable company post record earnings two years after his arrival as chief operating officer in 1999. He is now chief executive officer at the automaker and at affiliate Renault SA.

Nishimatsu was unavailable for interview, said JAL spokeswoman Sze Hunn Yap.

200 Billion Yen

The Tokyo-based carrier is seeking a 200 billion yen ($2.2 billion) bridge loan, the Mainichi newspaper said this week. The government-appointed restructuring panel is due to complete its plan by the end of this month, Transport Minister Seiji Maehara said yesterday. Maehara declined to comment on Nishimatsu’s future last week.

JAL had its biggest loss in six years in the quarter ended June, with the global recession causing a 25 percent decline in international passenger numbers that month. The carrier expects a 63 billion yen loss this year, its fourth unprofitable year in five. Interest-bearing debts stood at 1.44 trillion yen at the end of March, even after a 25 percent reduction over three years.

“Nishimatsu should resign,” said Mitsushige Akino, who oversees the equivalent of $660 million in assets in Tokyo at Ichiyoshi Investment Management Co. “It will send a signal of urgency to stakeholders and spur action.” He doesn’t own JAL shares.

Share Slump

JAL has tumbled more than 30 percent since Prime Minister Yukio Hatoyama’s government took power just over a month ago, pledging to re-evaluate state financing of projects. Last week, the carrier was also downgraded two levels by Standard & Poor’s, which said bankruptcy was a possibility. The airline rose 4.4 percent to 118 yen on Oct. 20.

Delta and AMR Corp.’s American have resumed talks with JAL on a possible tie-up, following a pause while the taskforce began work, according to three people familiar with matter. A deal with JAL may boost the U.S. carriers’ access to China, Asia’s biggest air traffic market.

Nishimatsu became president in 2006, succeeding Toshiyuki Shinmachi who rose to the top job after 39 years at the carrier. Since taking office, Nishimatsu has sold stakes in units, cut wages and shed over 5,000 workers, or about 10 percent of the workforce. Last month, he pledged to cut a further 6,800 jobs over the next three years and undertake the carrier’s biggest network reduction.

“Nishimatsu hasn’t done a bad job really, but it probably won’t be enough to save him,” said Makoto Murayama, a Nomura Securities Co. analyst in Tokyo. “The banks may ask him to go as a condition for support.”

Sony’s Stringer

Sony Corp., the maker of PlayStation 3, also appointed a foreign chief executive officer, Welsh-born U.S. citizen Howard Stringer, in 2005. He is now cutting 16,000 jobs and shutting factories after the company slumped to its first loss in 14 years on the global recession.

Not all foreign CEOs have been successful in Japan. Rolf Eckrodt left Mitsubishi Motors Corp. in 2004 after the carmaker posted a loss following recalls in Japan and slumping sales in the U.S.

JAL may also need more than just a change of leadership to return to profit, according to Ushio Chujo, a professor at Keio university and an aviation adviser.

“JAL should go bankrupt and wipe the slate clean,” he said. “It’d be easier to start from zero.”

JAL may need to find outside CEO to win debt-forgiveness from lenders
JAL CEO Haruka Nishimatsu has been asked to quit / Image via


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