Air China's - Orient Aviation

work in the finance division and variousother corporate activities,” he said.“I thought that if the troubles could beresolved by [me] assuming the position andthe company was united, I should try.”Set to assume his new role in June whenhis position is expected to be approved at thecarrier’s annual general meeting, he has atough assignment ahead.While restoring its dented safety image isthe number one priority (see separate story)for JAL, it has other fundamental problems.It must restructure the way it does business,massively trim costs and improve its bottomline.It also has to transform its corporateculture, eliminate disharmony within itsranks, not to mention win back defectingJAL air travellers.Financially, there is a mountain to climb.JAL reported a group net loss of US$195.6million for the first three quarters of its 2005-06 year and it is expected to suffer a net lossof $399.7 million for the full year, to March31. The carrier had earlier forecast a profit of$144.6 million for the 12-month period.While rival All Nippon Airways (ANA)is churning out impressive results, recentlyraising its full year profit forecast to around$145 million, JAL has been slipping back.Tough competition and high fuel costsaside, the major reason for its dismalperformance was a series of safety incidentsthat led to an unprecedented public dressingdown for JAL in March last year fromJapan’s Civil Aviation Bureau (CAB). Thegovernment authority essentially told thecarrier to lift its safety game.Japan’s voracious media have had a fieldday and JAL alleges minor mishaps havebeen given sensational coverage. The endresult was that domestic passengers left JALin droves, mostly opting to fly with ANA,which plunged the domestic operation intoa projected loss of $272 million in the latestfiscal year.The linchpin in the planned recoverywill be an ambitious medium-term businessplan, released last March, which focused onregaining customer trust, improving servicelevels, restructuring international operationsand implementing widespread measures togenerate cost savings.Under the plan, JAL will recoverprofitability in 2006-07, finish rebuildingits business processes by 2008 and roll outoperating profit margins in excess of 5% by2010.To achieve these targets JAL has toOutgoing JAL president, ToshiyukiShinmachi: the victim of an internalcouprestructure itself into an airline that canconsistently make an operating profit of at least$850 million a year so it can survive in volatilebusiness conditions, said Nishimatsu.“By securing an operating profit of thatamount, we’ll be able to absorb any impact– whatever happens,” he said. “But wemust have a long-term vision to sustain ourdevelopment.”One major task in the re-structuring willbe to reduce JAL’s interest-bearing liabilities,which are nearly the same as its gross salesof $17 billion. Under the business plan, thecarrier will try to reduce those liabilitiesby around $5 billion by the end of the 2010financial year.A critical element in turning the red inkinto black is winning agreement from theairline’s nine unions for temporary 10%pay cuts that will last for two years. This is abig move because JAL has never previouslysought wage cuts.“We have been able to shake hands orreach an agreement with the majority of theunions. We are beginning to implement thewage cuts,” Nishimatsu told Orient Aviationin Tokyo.Seven unions, including the largest, the10,000-member Japan Airlines Workers’Union (JALFIO), have agreed to the plan.JAL has around 18,300 employees.Negotiations are continuing with theremaining two unions, one representingpilots and another involving a minorityof flight attendants. The majority of cabincrew, those who were with the former JALbefore it merged with Japan Air System in2002 to form the current company, are withJALFIO.Nishimatsu sees personnel costs as a keyfactor in rebuilding JAL, although reducingbottom line costs will be an across-the-boardexercise. “ In the year just ended (March 31),we were able to achieve $59.5 million ofsavings in staff costs. In 2010 (year endingMarch 31, 2011) we are going for $280.6million,” said the CEO-designate.“In rationalizing international routes wesaved $25.5 million last year. That’s going toincrease to $178.6 million in 2010. Savingsin the purchasing area will go from $136million to $391.2 million. These are themajor components [of the restructuring],but overall, by 2010, in comparison to 2005,annual cost reduction will go from $484.7million to $1 billion.”None of this will work unless factionalismwithin the company is stamped out. Internaldisputes between various groups at JAL haveJapan Airlines: putting greater emphasison its cargo business in ChinaMAY 2006 ORIENT AVIATION 35