JAL Needs To Wean Itself From State Aid

TOKYO (Nikkei)–Struggling Japan Airlines Corp. is set to receive some 100 billion yen in loans from a group of lenders that includes the state-backed Development Bank of Japan (DBJ), possibly by the end of the month.

The fresh debt, which will give the carrier a temporary cash cushion, raises serious questions about JAL’s long-term viability. It will be the third time in a decade for the airline to receive a loan from the public lender.

JAL needs to step up its restructuring efforts to improve its cost structure and financial strength so that it will no longer have to rely on public aid.

JAL is far from alone among network carriers in facing a rough going. Revenue is falling for airlines around the world as the severe global recession stunts passenger and cargo demand.

JAL posted a net loss of 63.1 billion yen for the year ended in March 2009 and is looking at another year of dismal profit prospects.

The airline is apparently in a tougher bind than its main rival, All Nippon Airways Co.

There is a reasonable case for providing public financial support to JAL. The collapse of the carrier would have serious repercussions on people’s daily lives and the nation’s already weakened economy.

But the DBJ’s loan will provide nothing more than temporary relief, and the company’s fundamental problems will remain unsolved.

JAL received a similar public package in 2001, after the Sept. 11 terror attacks in the U.S. depressed air passenger traffic around the world, and again in 2003, after Severe Acute Respiratory Syndrome (SARS) began spreading.

The government sold the airline to the public in 1987, but the carrier has failed to completely wean itself from the government’s helping hand.

To move out from under the government’s protective wing, JAL must push through radical restructuring measures to reduce costs and cut capacity.

The carrier needs to downsize its overextended network and overhaul its embattled cargo business.

The airline also needs to squeeze costs in all areas, from the pension program to daily operating expenses, through a sweeping cost review. Like many other former state-run businesses, the company remains stuck with an uncompetitive cost structure.

Some of JAL’s troubles can be blamed on the government’s civil aviation policy, which has kept airport landing fees in Japan among the highest in the world.

Taxes and other public charges, including jet fuel levies, account for 12% of JAL’s operating costs, nearly double the international average of 6.5%.

The government should take swift steps to reduce the tax burden on Japanese airlines.

Another problem is that every time a new local airport opens, politicians and bureaucrats pressure airlines to launch new routes to the airport, even if profit prospects are bleak.

JAL has to tackle these challenges all at once to refashion itself into a more efficient and competitive airline.

The company’s financial health has great implications for the safety and convenience of the nation’s air traffic system.

(The Nikkei June 14 edition)

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