Japan Airlines (JAL) filed for bankruptcy on January 19, hammering home a sobering lesson for air carriers worldwide that the industry’s latest crisis is far from over–despite tentative recovery in traffic volumes. Just a week earlier, Andrew Herdman, director general of the Association of Asia Pacific Airlines, told AIN that 2010 will bring further losses–albeit somewhat reduced–on top of the past two years of financial drain.
JAL’s troubles go back several decades and are, to a significant degree, self-inflicted, given its ill-considered attempts to diversify into real estate and leisure. More recently, the flag carrier has battled with falling yields and efforts to cut costs while surviving on life support in the form of government financial aid. Now, the Japanese government has come out in support of a plan that will require creditors to forgive some $8 billion in unpaid debts, giving JAL two years to rebuild its broken business model–temporarily bolstered by Y300 billion ($3.29 billion) in direct state aid and a Y600 billion ($6.58 billion) line of credit.
Meanwhile, JAL’s benefactors hope that either existing partner American Airlines or prospective new partner Delta will soon intervene to support JAL in its efforts toward recovery. Despite its deep-seated difficulties, JAL still holds at least one key asset that could make it worth saving from the perspective of foreign partners: access to the Japanese market.
But before there appears any prospect of gain, many will undoubtedly feel further pain in the shape of substantial layoffs, cuts in staff pensions and the grounding of older aircraft such as JAL’s entire 747-400 fleet. It remains to be seen whether JAL’s order for Boeing 787s will survive the bankruptcy, or indeed whether the airline’s long-deferred confrontation of its harsh reality will put it back on its feet or prove too little too late.