SCENARIOS-Japan Airline fate in hands of task force

TOKYO, Sept 30 (Reuters) - With losses mounting, rival airline alliance groups facing off and a new government in power, the fate of troubled Japan Airlines Corp 9205.T has been put in the hands of a five-man task force.

An aggressive restructuring is on the cards as four of the five members are former officials of a state-backed corporate turnaround body, the Industrial Revitalization Corp of Japan.

In the past five years, retailer Daiei Corp 8263.T and cosmetics maker Kanebo Corp went through drastic rehabilitations under the IRCJ before being sold.

The task force, set up by the government last week, aims to put together a draft plan by the end of October.

It is widely expected that the state will have to give JAL a capital infusion to keep it afloat.

Following are possible scenarios for Asia’s largest carrier by revenue.


JAL submitted a restructuring plan last month under which it pledged to cut operating costs by 30 percent through various measures including cutting 6,800 jobs, or roughly 14 percent of its workforce, and eliminating 50 routes.

But transport minister Seiji Maehara said the cost-cutting measures did not go far enough.

According to sources familiar with the matter, a more drastic idea of splitting the airline into “good” and “bad” parts, as U.S. automaker General Motors [GM.UL] did, has been suggested by some lenders.

Cosmetics maker Kanebo was separated into profitable and loss-making parts under the IRCJ.

But analysts have doubts the technique can apply to airlines. “Air carriers use the same aircrafts and workforce in the whole network. It will be impossible to separate it,” said Ryota Himeno, a transport analyst at Mitsubishi UFJ Securities.


With "open sky" deregulation proceeding worldwide, the transport minister has said JAL's restructuring must be considered in the broader context of how to bolster Japan's airline industry. Some analysts say two international carriers, JAL and All Nippon Airways 9202.T, is one too many for Japan.

In the United States and Europe, where the deregulation began earlier, Northwest was bought by Delta Airlines DAL.N and Air France AIRF.PA and Dutch KLM were merged.

Kazuhiko Toyama, a key member of the JAL task force and former chief operating officer of the IRCJ, is exploring the possibility of carving out JAL’s international operations and merging it with ANA, according to a source who discussed it with Toyama.

JAL would then become a local airline focusing on domestic and short-haul international flights, although such a plan might meet with opposition from ANA which has performed better than its larger rival.


Delta Air Lines DAL.N and American Airlines AMR.N are in rival talks to invest in JAL to expand their business in Asia. By forming a capital tie-up with either of them, JAL could also secure a viable business partner to help it weed out unprofitable routes and lower its operating costs.

But unlike the previous government which welcomed the negotiations, the new transport minister Maehara has withheld a comment on this matter so far.

A task force member told Reuters last week that they would end the discussions if they found out a tie-up would not raise JAL’s corporate value.

Toyama has said he prefers American, which is in the same Oneworld frequent-flyer group as JAL, according to the source who has discussed the matter with him.

Toyama has questioned the logic of having Delta support JAL given that both Delta and Northwest Airlines, which Delta acquired, have been through bankruptcy proceedings themselves, the source said.


The transport minister has said JAL must not be allowed to fail and that the government is ready to support the airline in case the “worst happens”. But Maehara has not defined exactly what would constitute a worst case scenario.

But some experts have argued that restructuring JAL is so complicated that it can only be done effectively in the courts.

JAL has eight in-house unions with which it is struggling to come to an agreement on pension and salary cuts seen as vital to its survival.

Some securities analysts are also sceptical about JAL’s ability to revive on its own.

“Bankruptcy is the worst scenario for investors,” said Himeno of Mitsubishi UFJ Securities. “But it might not be bad for JAL’s turnaround, considering it would be able to cut legacy costs without unions’ approval,” he added. (Reporting by Nobuhiro Kubo, Taro Fuse and Yoshifumi Takemoto; Editing by Lincoln Feast)