brunos

JAL hopeless situation could drag on forever as long as the government subsidizes its workers/pensioneers/pax. We are talking about over 1 trillion yen a year, or well over $10 billion per year. European governments started to realize that they cannot spend and borrow without limits, and the same wakeup call will materialize in Japan sooner or later.
Anyway, it seems much better to let an old cripple pass away quietly and let newborns pick up pieces and start afresh. Competition can spring up as in other Asian/european/American countries.

CubsFanJohn

IF JAL could dump it's pension payments like the US Airlines did how much could they save? I agree they can't continue to do this.

brunos

Pension liability is massive. They obtained a small reduction from pensioneers at time of bankrupcy. JAL might have had a chance if if they had taken drastic measures such as a 20% pay and pension cut, instead they engaged in marginal cost cutting. I am confident that Japanese pax remain faithful to JL especially if they offer attractive promotions (which further cut profits), but foreign-based business pax must have significantly dropped. I am consulting for a big corporation which has banned booking on JL because of the uncertainty. It is not the only one. And business flyers are high yield and the core of profits for an airline.
JL is basically asking lenders to write-off all of their debt. This wont go well. But even if they do, this is a one-time write-off. What about future financing?

acregal

The bureaucrats would probably freak out as there's one less place for them to work after retirement. If bureaucrats let them I would imagine some of the other carriers would love to expand.

CubsFanJohn

brunos,
You are right. I wouldn't fly JAL at the moment if I was traveling to Japan or Asia at the moment. IF JAL was smart they'd go for a 20% Pay and pension cut AND engage in Marginal Cost Cutting because even if you cut the pay you should still go with cost cuts. But I am convinced that JAL Management (Just from what I have read) doesn't get the reality of this and is in Disneyland. With the financing if I was a Bank hell would freeze over before I'd provide DIP to JAL. Sorry for my long post as a College Finance Major and a political junkie I am paying attention with great interest to this mess.

kcvt750

Warning: Do not attempt to apply western-logic to actions of Japanese companies or their shareholders.

laurajoyce

Do people think that JAL is done with cutting flights for the time being? I'm looking at booking award tickets for early February and have found seats on the ORD-NRT flight (and then on to BKK). Is ORD a good revenue flt for them or should I be concerned that it may get the axe before February?

kcvt750

I'd be worrying that JAL itself would be gone before next February. Although that would most likely mean that your booked JAL flight would now have an NH designator.

brunos

Being based in Asia and having lived for long in Japan, I am fully aware of cultural differences. But finance, additions and substractions still apply to Japan. If JL losses were the only to need subsidizing by Japan government, that would be fine. But the government finances are in a bigger mess than Greece and Spain. Obviously they have less pressures from the international financial markets because their bond investors are primarily Japanese, but they are close to breaking point and severe tensions are showing up.

CubsFanJohn

As one of my old college Math Teachers who is from Asia told me once "The Numbers don't lie."

kcvt750

And the death spiral continues. I'll have two of whatever Nakamura-san's smoking.....

Nikkei Excerpt: Wednesday, June 30, 2010

brunos

So sad. JAL could have gone into bankruptcy in summer 09, canceling its debt and making DRASTIC cuts in costs (including pensions, pay, etc..). Instead, they delayed and delayed and finally got into pseudo-bankruptcy in January with minuscule adjustments, except for debt forgiveness. They will go into a second bankruptcy (whatever it is called) having lost all credibility. No way they could find over $10 billion of new financing. Even if the government gives some form of guarantee, bankers will not be fooled as these guarantees means trouble to get money back promptly if JAL does not markedly improves. And losing credibility also means losing biz pax and being forced to offer unprofitable discount fares to all pax.
A saddening case study of poor crisis management.

CubsFanJohn

I am convinced that (This is an outsiders view) JAL thought they could make it on their own by having the Government continue to prop them up, and that isn't the case. If I was them I would have gone into bankruptcy as soon as we could have in 09 cut pensions by 50% at least, cut pay by 15-20%, outsource MX etc. But now there S.O.L. and no one is dumb enough to give them that kind of $$$$.. I sure as heck wouldn't give them a DIME! If I was OW I'd start looking for another Asian carrier to hook up with because I don't think JAL is gonna make it thru 2011-2012.

maeharasmuse

Well, nothing unexpected here.

I've always maintained that the only workable solution was to cease operations (at least temporarily) and liquidate the company.

I've seen that happen at Swissair. If they would have frozen operations, and disintegrated the respective companies (especially the links between those companies), it would have become much clearer what was going on, and what went wrong, and where the real culprits were, and where the worst abuse and the infiltration by criminal organisations were to be found.

Who knows what will happen now...

Cease operations, close down for business, close down the books and submit them to the bankruptcy courts, and (where indicated, and only at those companies where this makes sense) reset the ledgers and restart from zero.

That was the only way forward if they really wanted to clean up this mess, restructure the company and go forward with those undertakings that had a chance of survival, and that could have been divisted from to maximize value for the creditors (as part of the bankruptcy / liquidation process).

Especially in Japan with its keiretsu-business-culture, this was an absolutely necessary path they - for some reason - preferred not to take, pretending there was no real need or no real urgency about any of these things... maintaining drastic solutions could not be applied here, in the name of saving face and in the name of maintaining the status quo: the sacred JAL-ANA duopoly that never worked before, and that will never work in the future.

I predicted it would be absolute madness from an auditing point of view.

And I am sure it is.

How can the bankruptcy court ever get a clear view on the financial situation of the company, if most of the operations (and internal contracts/transfers/compensations) as well as many financial transactions are being maintained as if nothing happened. That's just crazy. How will they ever be able to figure out who owns what to whom, which claims/loans/assets are preferred, and how much will be left to the shareholders/creditors/pensioners/govt???

Especially b/c they keep on saying they want to swap debt for stocks.

I mean, pretty soon there will be nothing left but debt. Well, let me correct myself: according to these latest reports, debt so far outstrips any remaining assets (and the no-doubt already ludicrously overestimated company goodwill) that it just beggars belief why they would wanna continue with this whole thing in the first place. I'm sorry, but it just doesn't make any sense. At all.

With it's half-hearted approach to restructuring, and with it's misguided "JAL needs to be great to exist" strategy, JAL has wasted far too much valuable time already. They're still bleeding money like crazy. And nobody seems to be able to figure things out or to really grasp what's going on inside the company; forcing the bankruptcy court to postpone its deadlines, time and again.

Just think of all the deals that were set up for reasons of structured finance and tax optimisation, and just think of all the window dressing that was going on (internally and externally) and that no doubt is still going within the JAL holding.

Not to forget, of course, all the dodgy agreements between the managers and/or the politicians at separate entities of the company.

Really, I am not surprised at all to find out that they can't seem to get this monster under control.

All the ramblings about JAL returning back to profits were nothing more than sand in the eyes.

The other thing that comes out of this, however (and despite the courts and the GOJ having given JAL a further 6 months to dig a bit deeper and hide their s!ht ever deeper under the ground), is the financial irregularities that were going on at this public stock-listed company.

Beside the mystery air plane orders with Boeing (that had been - undisclosed - on the books for quite a while), we now find that the rest of the financial reporting was absolutely inadequate as well.

Of course, for a public company that was listed at the stock exchange, and that was not only getting involved in all kinds of financial transactions with suppliers, banks and other financials institutions, but that was also in charge of managing it's workers and ex-workers pension funds, this is simply unforgiveable.

Even in Japan there must be some bounderies to fraud and/or false representation and/or incorrect investor information. At least from an investor's perspective. At least from the courts' perspective. Oh, yeah: even in Japan...

Somebody is going to have to go to jail over this.

And some people are going to lose their jobs over this, having been so stupid to continue to trust JAL and to throw good money after bad, time and again.

And for sure, JAL (or its successor holding-company) is going to be liable in court, especially abroad (still, as of today, no planes or other assets have been frozen yet).

Hillary Clinton or whomever it is at the State Dept. (and I am pretty sure they will - as long as the US airlines can continue their rape of the Japanese air services market) will have to sign a positive court injunction everyday they walk into their office, in order to prevent this fraud case from ever being heard in a court in the state of New York, or elsewhere in the U.S. Not to mention the other countries where (former) investors and creditors might go to court to have their interests protected.

At least the credit card companies have their payments protected and guaranteed by the GOJ, or do they??

And who is protecting our miles in the JMB?? Did JAL swith to IFRIC13 already??

As for the future of JAL itself, I am not very hopeful - as most of you probably know by now.

I've said it before, and I'll say it again: JAL is nothing more than a flying zombie.

Let her die already!!

.

whkento

<Sigh> It's all so disheartening.