JAL files aggressive restructuring plan; 16,000 workers, 103 aircraft to be cut by March 2011

Japan Airlines 767. Photo: Courtesy, Boeing.

Japan Airlines on Tuesday unveiled a more radical restructuring plan than expected, calling for the retirement or layoff of more than 16,000 staff by March 31, 2011, as well as the disposal of 103 aircraft and the scrapping of 49 loss-making routes.

The company outlined its ambitious reorganization plan aimed at achieving a profit margin of 9.2% by March 2013 in a filing with the Tokyo court overseeing its bankruptcy case under Japan's Corporate Rehabilitation Law. It had been considering eliminating more than 19,000 jobs but at a more gradual pace (ATW Daily News, Aug. 10). Initially, the airline had suggested that just 31 routes would be terminated.

The restructuring package is dependent on a ¥521.5 billion debt waiver from financial institutions including the Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group and the Development Bank of Japan. The state-affiliated Enterprise Turnaround Initiative Corp. of Japan announced it will inject another ¥350 billion into the airline.

JAL is aiming for a Nov. 30 court approval of its reorganization plan and intends to implement it from Dec. 1. Key points include reducing employment from 48,714 as of March 31, 2010 to "roughly 32,600" by next March; reducing and downsizing the fleet; eliminating unprofitable routes; reforming airport cost structures and facilities; reviewing wage and benefit systems; liquidating and selling subsidiaries including hotel businesses (ATW Daily News, Aug. 9); and enhancing its network via utilization of bilateral alliances with other carriers, particularly oneworld partner American Airlines.

The changes will be matched by what the airline called "a more efficient and strategic organization that is capable of reliably sharing the [company's] managerial policy." In a stark admission of past failings, JAL's court submission said airline executives must learn "more quickly [about] the actual state of the Group's profit and loss." A panel of experts determined in August that "mismanagement and a lack of risk awareness" led JAL to bankruptcy (ATW Daily News, Aug. 20).

In its court filing, JAL said it will be "clarifying where the responsibility lies for meeting numerical targets." It will construct a management control structure that is capable of reliably executing business plans."

JAL said it had debt of ¥959 billion ($11.3 billion) as of the March 31 end of its fiscal year. It filed for bankruptcy in January with liabilities totaling ¥2.32 trillion (ATW Daily News, Jan. 20).

The fleet changes involve the grounding of all its 747-400s, A300-600s, MD-81s and MD-90s by March 31, 2011, with the fleet going forward to be built around the 787, 777, 767, 737 and Embraer 170.

"This revitalization plan is the start of the rebirth of JAL," CEO Kazuo Inamori told reporters in Tokyo Tuesday. "We must do our utmost to make sure that this does not end as just fantasy."