JAL, JR Tokai: A Study In Post-Privatization Contrasts

TOKYO (Nikkei)–The circumstances surrounding transportation giants Japan Airlines Corp. and Central Japan Railway after their privatization could hardly be more different, and industry watchers are trying to figure out why.

JAL was poised to get on a recovery track before the global financial crisis hit and dragged it into a liquidity crunch. Japan’s flagship carrier will be able to overcome the emergency for the time being thanks to a syndicated bank loan it will receive that is partially guaranteed by the government. But the airline has yet to show signs of revival.

In contrast, Central Japan Railway, better known as JR Tokai, is on a growth track. Last month, it announced the estimated cost of building a magnetically levitated train system between Tokyo and Nagoya, marking the first step toward realizing its long-established goal.

Both firms share many commonalities, not the least of which is serving the public. JR Tokai and other member companies of the Japan National Railways Co. group before its privatization in 1987 had to deal with strong in-house labor unions. Similarly, JAL’s management has its hands full dealing with eight unions.

Both companies have many unprofitable “political routes” on which they cannot readily pull the plug due to local opposition and intervention from politicians. In this sense, JAL and JR Tokai have limited management freedom.

But the managements at JR Tokai and the two other JR firms on Japan’s mainland — East Japan Railway Co. and West Japan Railway Co. — have taken major steps to show that they are keen on serving customer interests.

The three JR companies have promoted passenger-friendly services, including introducing faster “shinkansen” bullet trains and increasing the number of trains operating during rush hours. They have also continued to pay back the huge debts left by JNR.

As a result, JR Tokai is in position to carry out the Maglev train project, which is worth more than 5 trillion yen.

JNR faced many challenges in the form of competition from expressways and private railways. At one point, the shinkansen and Tokyo loop lines were expected to be the sole survivors of all of its train services.

“This sense of crisis was the driving force behind our reform,” recalls a JR group executive.

It was also in 1987 that JAL underwent the transformation from a special public corporation to a fully privatized company. But it has deviated from the ideal path of privatization.

The carrier has been bailed out by the government on three occasions in the past decade — after the 9/11 terror attacks in 2001, after the international SARS outbreak in 2003, and during the current global financial crisis. Without government support, the carrier’s ability to survive is questionable.

Privatization can revive an ailing company if energy for reform emerges within. It also brings great benefits to the national economy. But a company cannot offer these benefits if it maintains a lukewarm constitution nurtured during its days of a public entity.

The latter case applies to JAL. Protected by vested interests, such as landing slots at Haneda and Narita airports, the firm was riven by internal strife even as it was caught in a financial crisis three years ago.

Japan Post Holdings Co., now in a 10-year process of privatization, is drawing attention as to whether it will go in the direction of the JR companies or JAL.

The privatization of postal services is indispensable for applying the brakes to the excess growth of government enterprises and reinforcing the Japanese economy. But the recent chaos over Japan Post, including uncertainties about its very privatization, leaves little room for optimism.

— Translated from an article by senior Nikkei staff writer Kunio Saizyo

(The Nikkei July 7 morning edition)