JAL cuts routes in bid to draw funds

Japan Airlines is in talks with Delta about equity injection as JAL slashes jobs and routes.
Japan Airlines is to cut 6,800 jobs, slash its network of overseas routes and withdraw from some airports as it seeks to attract the funding it needs to repair its balance sheet.

Haruka Nishimatsu, JAL’s president, also said that the company aims to agree on a capital injection from a foreign rival by mid-October. JAL is in talks with US rivals Delta Air Lines and American Airlines about an equity injection of about Y30bn ($328m) — and, according to reports in the local media, is also in discussions with Air France-KLM. The restructuring plan — which JAL presented to a government-appointed panel on Tuesday — is the company’s last-ditch attempt to persuade the government, its consortium of banks, and potential investors that it can return to profit and, therefore, deserves further support. “It’s like the end of 1944 or 1945, after the Normandy landings,” said one person connected to the talks. The plan includes heavy cuts to JAL’s international network — 20 or 30 routes according to local media — for which demand is at its most volatile. JAL’s international and domestic routes are currently split 50:50, but the airline would now focus more on its domestic services, said a transport ministry official who attended the presentation. JAL also intends to increase the use of smaller aircraft on some routes, and withdraw entirely from some airports. In addition to the job cuts — 14 per cent of JAL’s workforce — the company wants to cut pay and significantly reduce its pension costs.

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JAL lost Y63bn last year and a further Y99bn in the quarter from April to June. The company has about Y100bn in debt maturing in December, and will need to refinance another Y100bn by March, while shareholders’ equity had fallen to 10 per cent of total assets by the end of June. Any capital injection from Delta or American would be conditional on the US and Japan reaching an “open skies” agreement and US antitrust immunity. The transport ministry said that JAL would be free to chose whichever ally brought it the greatest efficiency. A deal between JAL and Delta — and JAL’s defection to the Skyteam airline alliance — would be a severe blow to American and JAL’s existing allies in the Oneworld group. However, the costs of changing computer systems over to the Skyteam alliance could soak up much of Delta’s proposed investment, and one person close to the negotiations said it might be hard to agree such a complicated deal by the mid-October deadline. JAL must submit a detailed restructuring plan to the ministry by the end of the month. Its future will depend heavily on who the new Democratic Party government appoints as transport minister and whether they offer further public support.