Panel attributes JAL bankruptcy filing to 'mismanagement'

Japan Airlines. Photo: By Roger Payne.

"Mismanagement and a lack of risk awareness" drove Japan Airlines into a bankruptcy filing in January under Japan's Corporate Rehabilitation Law, according to a Kyodo summary of a forthcoming report from a panel investigating the carrier's financial troubles.

A five-person panel of experts was assigned to determine why JAL faltered so badly (ATW Daily News, Aug. 11). Kyodo cited a draft report that will be submitted to JAL's bankruptcy administrator in coming weeks. The panel concluded that JAL executives cannot be held criminally or civilly liable for their conduct, but noted they failed to realize how much trouble the company was in.

It blamed "the firm's compartmentalized administrative structure in terms of corporate planning, sales and marketing, and other operations" for not allowing management to connect the dots, according to Kyodo. The panel said JAL was slow in implementing restructuring efforts to improve its balance sheet when it was seeing a decline in passengers owing to 9/11 and SARS.

However, JAL’s management did respond to the events of 2001 by merging with Japan Air System, a move lauded at the time. The airline was often limited in taking reform action by the country’s rigid labor laws and job-for-life culture. Bankruptcy restructuring will reportedly enable it to shed more than 19,000 jobs by March 2015 (ATW Daily News, Aug. 10), far more cuts than were ever contemplated in past years.

The panel's report echoes remarks made by JAL CEO Kazuo Inamori, the iconic Japanese business figure who took the helm of the carrier in January when it entered into bankruptcy. He candidly expressed his assessment in March that an "extremely low" number of the airline's executives have business sense. He said he told them, "You guys wouldn't be able to run a greengrocery with your ideas" (ATW Daily News, March 18).

Separately, JAL announced yesterday it will sell 95% of its stake in JAL Sky Nagoya Co. and 61% of its 66% stake in Chubu Sky Support Co. Subsidiary JAL Ground Service Co. will sell 34% of its stake in CSS to Suzuyo & Co. by way of a stock transfer agreement. Additionally, JAL Cargo Service Co. will transfer the business and assets of its cargo handling operations at Chubu airport to Suzuyo through a business transfer agreement.