Raw Japan

JAL’s zen pilot

 The next boss of beleagured Japan Airlines is a 77-year-old ordained zen monk who founded multi-billion dollar tech and telecoms companies, and – unlike most Japanese corporate peers – actually backed the current ruling party.

Kazuo Inamori, honorary chairman of electronics parts maker Kyocera and critic of many modern CEOs as well as capitalism’s excesses (think an older Michael Moore at Kyoto’s Ginkakuji), says he will take the job for no salary, working only three to four days a week.

Long hours and zen resolve may be needed, though, as JAL shares slipped to 7 yen in value Wednesday, making its market capitalisation at about $200 million less than a single Boeing 747-8 aircraft.

Analysts say Inamori, who has launched a leadership school as well as his own foundation, may be the new government’s attempt to win a public buy-in that a principled outsider and his “Kyocera philosophy” of “doing good and doing well” can succeed where a slew of JAL managers have failed.

Going for broke?

“Another love so true That once turned all my gray skies blue But you disappeared Now my eyes are filled with tears” K. Sakamoto

Japan Airlines appears set to enter the hangar of court protection with $16 billion in debt, equal to a one-way Tokyo-Sapporo ticket for every citizen. The move would not be the most momentous  for Japan or for a global carrier in the age of deregulation, but it would be one of the most well-telegraphed.

JAL shares were toxic and untraded early on Tuesday, after a state-backed fund in charge of restructuring said it was leaning towards delisting after a bankruptcy. A source at the Enterprise Turnaround Initiative Corp of Japan told Reuters it intends to hold shareholders accountable, but with losses of over 45 percent since Friday and over 80 percent since Jan. 5 last year, many would contend they’ve already felt the carrier’s pain.

The government will soon explain to 35 nations JAL’s flight plan.

Asia’s largest airline by revenue has convinced major banks to sign off on bankruptcy, but eyes remain on its alliance plans and  international air routes. Media reports say JAL will likely receive no capital injection from any carrier or alliance, but may launch new ties with Delta Air Lines’ SkyTeam alliance, a possible stiff-arm to its current alliance as American Airlines’ officials circled in Tokyo with bigger offers on Tuesday.

The government says it will keep JAL airborne through the entire process, but losses are estimated at $13 billion for the current year, meaning a negative net worth of almost $9 billion and the need for some sort of reasonably rapid credit infusion.

SMFG banking on Asia?

The bulk of Sumitomo Mitsui Financial Group’s  up to $9.7 billion share issue will go to meet stricter capital requirements, but sources say the bank will use some money to hunt for more opportunities in Asia.

Asian expansion is increasingly important for Japanese lenders, saddled with low profit margins and few opportunities for growth at home. Sumitomo Mitsui already has stakes in Vietnam’s Eximbank, South Korea’s KB Financial and Hong Kong’s Bank of East Asia, and wants to benefit more from the region’s growing economies.

Less than 15 percent of Sumitomo Mitsui’s gross profit comes from overseas now, but it wants to raise that to as much as 30 percent in the next few years by focusing on Asia.

It’s a tall order. Unlike some major European commercial banks, such as HSBC and Standard Chartered, Japanese lenders don’t have a strong track record abroad, as the vast majority of their overseas operations are focused on servicing Japanese corporates.

In an interview this week with Reuters Television, SMFG President Teisuke Kitayama spoke about the bank’s desire for Asian expansion as well as capital raising and the future of troubled carrier Japan Airlines.

Photo credit: REUTERS/Toru Hanai

JAL’s game of chicken

“Turbulent” wouldn’t properly describe the recent flight path of national flag carrier Japan Airlines, in a spiralling game of chicken with its retirees and unions over a $3.7 billion pension shortfall.

President Haruka Nishimatsu, who needs a pension deal to get bridge loans and bailout money from the state,  is asking for an average 40 percent cut from retirees and current employees.

“If we can’t, risks to our survival will increase, including the possibility of a court-led reorganisation,” he said on Monday to a gathering of unions and retirees.

The merits for the 17,000 current staff and some 9,000 retirees, who can block any pension cut if more than one-third object, are not compelling to everyone.

“I feel an attachment to the company, but on the other hand I have my own life. I have been banking on that corporate pension to make ends meet,” said a 59-year-old male retiree.

Highway to the stranger zone

Not so long ago, once proud Japan Airlines had few friends besides the government, which threw it a $1.1 billion bone in the form of emergency support in June to keep the national flag carrier in the pink, if not the black, as Asia’s largest airline by revenues continued to bleed money — about $1 billion in the last quarter — and painfully restructure.

But in a weekend, JAL has suddenly become the belle of the Pacific ball, with both Delta and American Airlines possibly looking at minor stake acquisitions worth hundreds of millions of dollars, and public broadcaster NHK reporting that it is also eyeing a capital injection from Air France-KLM, all likely dictated by a state-supervised restructuring plan due by month’s that may carry another plea for government aid.

Delta, in the competing “Skyteam” alliance, would reportedly inject up to $550 million and would want international code-sharing, while a pact with “Oneworld” alliance peer AA would be a minority stake for revenue-sharing and other business ties, dependent on U.S.-Japan “open skies” talks.

Potential carrier ties almost certainly could not involve all, while no direct links have so far mentioned Japan’s No.2, All Nippon Airways, although tabloid reports when JAL last landed on this blog tarmac in January predicted a possible merger.  The industry may lose $9 billion this year and JAL a sizable chunk, but apparently things are not quite bad enough to put the two in the same hangar just yet.

An equity sales push would not be limited to airlines, as JAL reportedly plans to ask aircraft makers, trading houses, investment funds and the government to buy its stock. Japanese law prohibits over one-third foreign ownership of JAL, but there has never been a threat to push that envelope, with international shareholding under 5 percent now. Shares were down 14 percent since the last state-backed support in June, but the news about new possible dance partners gave it new loft on Monday.

A friend who used to work for JAL for decades put part of its conundrum in this light:

JAL – What a feeling!

At Tokyo’s Haneda Airport today, I watched a bio-fuelled JAL aircraft find loft in a sign of 21st Century change.

But for executives of Japan’s flag carrier, Asia’s largest, the exercise was also a brief diversion from the terrestrial woes of the world financial crisis.

Japan Airlines, like its international air rivals, has surplus routes, seats and staff amid the worst times for the industry since September 2001.

A national airline once deemed among Japan’s best employers is now also trying to shed capacity.

This is neither rare nor exceptionally difficult if you’re world No.1 airline Delta Air Lines or other carriers accustomed to mergers, union fights or cut-throat competition.