Japan's Minister of Land, Infrastructure, Transport and Tourism announced Tuesday that ailing Japan Airlines Corp., the nation's top carrier, can turn itself around despite share prices plummeting in recent weeks.
"I still believe JAL can definitely rebuild itself if it carries out drastic restructuring, reviews its routes, replaces aging aircraft, and
resolves the pension issue," Maehara said in a statement to the press on Tuesday.
Maehara added that it was in the best interests of the company to lay out a clear road map for pension reforms, an issue that has caused a great deal of consternation amongst JAL's former employees as well as current
investors, if the carrier wants a broad scale financial intervention by a state-backed corporate body to be considered.
JAL had previously proposed a 44 percent cut in pension provision for current and former employees who have previously enjoyed very generous retirement packages, but have revised this figure to 30 percent, however will need the consent from a two- third majority of its current and ex-employees before the company can go ahead with revising its corporate pension structure.
Earlier in November, JAL said it was considering asking for 125 billion yen in bridge funds from a state-backed lender and other institutions. It said it planned to conclude talks on a potential alliance with another
carrier by the year-end and that AMR Corp's American Airlines would be a "natural" partner.
"It is not certain whether JAL will go through a private reorganization or file for bankruptcy," "But even if it stays clear of bankruptcy, we think value for existing shareholders will be substantially reduced on dilution accompanying a big capital increase," wrote Naoko Matsumoto, an analyst for Citigroup, in a report Tuesday.
What has been made abundantly clear amid all the speculation is that the company is seeking a significant injection of capital from a third party to see the fragile airline through this period of sustained economic turbulence, but the pension issue remains a precarious course the carrier and the government must traverse together.
JAL has turned to the Enterprise Turnaround Initiative Corp. of Japan (ETIC) to work on the rebuilding plan for Japan's number one carrier, but the government remains opposed to supporting the carrier until it can achieve drastic cuts in pension payouts, raising the risk of legal
liquidation if the issue cannot be dealt with in a timely fashion, according to analysts.
"If public funds are going to be injected, it would be most difficult to obtain the public's understanding if their taxes are going to be used to protect (JAL's) pensions. It is important first for JAL, along with its retirees, to make independent efforts to decide on a firm pension policy," said Maehara.
Manabu Sato, the airline's Executive Officer Deputy General Manager of Corporate Affairs commented that since the restructuring of the unprofitable routes was hurriedly carried out, JAL will have to further review its plans
for route restructuring. Business traffic has considerably dropped on these routes, thus lowering the profitability, which leads to the route suspensions and frequency reductions.
In an effort to reverse JAL's hemorrhaging of capital reserves, the carrier will discontinue 10 international routes, canceling some 61 weekly
return flights effective from its winter schedule during the fiscal year 2009. Eight routes are to be suspended and two routes will see a weekly
frequency reduction. The airline will pull out all operations from Hangzhou, Qingdao, Xiamen in China as well as routes to Mexico.
The route restructuring will bring a total of 13 suspensions and reductions, including those already announced in the current fiscal year
2009.
JAL will also suspend eight domestic routes canceling 13 return flights per day between the second half of fiscal year 2009 and the first half of fiscal year 2010. The airline's current flight operations at Kobe Airport will also be terminated. A total of 15 domestic routes will be discontinued, factoring in those that have already been announced.
JAL will also downsize the number of planes in its total fleet, as a further bid to stem the tide of capital flowing out of the company.
The suspensions and reductions of the routes and the downsizing of its fleet will purportedly net the company 7.1 billion yen per year, when
expenditure has been deducted from revenue made.
The axing of a total of 28 routes will save the carrier an estimated 12.2 billion yen per year.