A good first step. Japan Airlines’ bankruptcy filing Tuesday is being welcomed by those who are calling for more accountability in Japan Inc.’s affairs.
Too much, though, remains unresolved to issue a final ruling on this restructuring.
Unlike past government-funded bailouts that have left JAL’s underlying problems unresolved, this time all of the carrier’s major stakeholders look set to take a hit as those issues are addressed.
It’s only fair. Each of these groups—former workers with enviable pensions, current employees who refused to concede enough job or pay cuts, and banks that kept lending under the assumption that Tokyo would cover them—has played a role in kicking JAL’s structural problems down the road. JAL’s three-year plan will slash the company’s work force by about one-third and ditch 34 loss-making routes. Lenders to Japan’s former flag carrier will forgive about $8.1 billion in loans, and shareholder equity will be wiped out. More than a few of JAL’s indecisive executives, meanwhile, will also be replaced.
Credit to Tokyo for steering JAL into bankruptcy protection. But it is reasonable to wonder if the Democratic Party of Japan can sustain the political will to stand up to vested interests as it looks to cut jobs and routes.
Meanwhile, JAL’s new leadership faces a challenge in keeping travelers from deserting to All Nippon Airways, like they did several years ago amid worries about JAL’s then-wobbly safety record.
For ANA, a different kind of uncertainty hangs in its future. Even if it wins some of JAL’s customers, Japan’s second carrier may find itself facing a leaner, more competitive rival in a few years. On the plus side, if the bankruptcy filing leads to a much needed restructuring of aviation policy, namely removing politics from route planning and cutting airport fees, that could be a boon to ANA and a revitalized JAL.
The ripple effects may not end there. Creditors and shareholders in other Japanese quasi-public or ex-state firms, such as highly leveraged utilities and railroads, may begin to wonder whether the tough love being meted out to JAL has fundamentally changed the status of those companies as “too big to fail.”
Years late, the reckoning has caught up with JAL. But whether that lesson, namely not to shirk tough, unpopular decisions, sinks in for greater Japan is up in the air.