Tuesday, August 31, 2010

Japan Airlines to reduce aircraft fleet and routes

Japan Airlines said it will retire two-fifths of its aircraft, abandon one in eight overseas flights and end a quarter of its home routes in a bid to return to profit.

To compete against cheaper regional rivals, JAL also said it would look at creating a low-cost carrier. The state-backed turnaround body leading the restructuring said re-listing the airline would be possible by 2013.

JAL's turnaround pledge, submitted to the Tokyo District Court on Tuesday, includes a halt to 10 international flights following earlier closures aimed at stemming losses. It will also stop plying 39 domestic routes.

JAL forecast the latest contraction in money-losing services would help it to achieve an operating profit margin of 9.2 percent by March 2013.

"JAL's flop has caused a lot of trouble to shareholders and financial institutions," said Chairman and Chief Executive Kazuo Inamori at a news conference in Tokyo.

"Today is a new start for us," said Inamori, the 77-year old founder of electronics maker Kyocera, who was asked by the government to run JAL for three years after it filed for bankruptcy.


Under the turnaround plan, JAL will receive an injection of JPY¥350 billion (USD$4.14 billion) from the government and a JPY¥521 billion debt waiver from banks including Mitsubishi UFJ Financial and Mizuho Financial. JAL said it had JPY¥959 billion of liabilities at the end of March.

Brought down by years of high costs, the former state carrier still faces an uncertain future as it takes on other carriers in a burgeoning and increasingly competitive regional air market.

JAL's new start may also be without the architect of its revival. Speaking at the unveiling of its business plan, Inamori said he wanted to step down as CEO in February 2012, a year earlier than he had agreed to when he took the job in January.

Aviation analysts applauded Inamori's fleet changes, which amount to the elimination of 103 aircraft.

JAL will offload all its Boeing 747-400 and Airbus A300-600 jets it owns by March next year, and will stop operating all its McDonnell Douglas-built MD81 and MD90 aircraft by a later date. When complete, JAL will use four models rather than the seven it flies now.

"This is a massive shutdown in a very short amount of time, and generally only happens when airlines are shut down, not when they restructure," said Shashank Nigam, head of Singapore-based airline industry consultant SimpliFlying.

"We are likely to see a very much smaller and more regional Japan Airlines come out of this," he said.


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