JAL's Hard Landing


It’s always big news when a national airline goes bankrupt, and especially so in an economy the size of Japan’s. But one of the interesting things in the case of Japan Airlines is what it might be saying about a shift in the government’s strategy.

As this BusinessWeek piece points out, JAL has been coddled by successive Japanese administrations, and the Democratic Party of Japan had indicated it would do much the same. But the party had also promised to rethink some of the cosy government-big business ties that had marked more than 50 years of virtually uninterrupted rule by the Liberal Democratic Party, and it has, finally, taken a tougher line on JAL:

‘Hatoyama, 62, on Sept. 30 told reporters: “I fully believe JAL can restructure itself,” and pledged to give it more backing. Transport Minister Seiji Maehara on Nov. 11 said the Development Bank of Japan would provide a bridge loan for an undisclosed amount.

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‘A week later Maehara told a parliamentary committee that the government wouldn’t rule out bankruptcy. He then pushed the carrier’s retired workers to accept pension cuts to help with restructuring.

‘”The historical view of the Japanese government, that it must support certain sectors or companies regardless of the cost to the Japanese taxpayer, is changing very significantly,” said Ed Rogers, chief executive officer of Tokyo-based hedge-fund adviser Rogers Investment Advisors Y.K.’

Government ‘assistance’ has anyway been a double-edged sword for JAL–despite an extensive (and hugely efficient) rail network servicing a landmass smaller than that of California, Japan still has almost 100 airports. Yet it and fellow Japanese airline ANA have serviced many of the routes at a loss because of political and regulatory pressure (a report last year by the Asahi said almost three-quarters of the two airlines’ domestic routes operated at a loss).

And there’s still plenty of scope yet for the DPJ to give the stale government-business ties a thorough and necessary airing.

On a related note, while Japan struggles to find its economic policy footing (its finance minister resigned this month, supposedly on health grounds, though it’s widely believed he’s fallen foul of DPJ ‘Shadow Shogun’ Ichiro Ozawa) China has become the world’s largest exporter, surpassing Germany.

Daniel Ikenson at the Cato Institute has a useful take on what this new status as top exporter does, and doesn’t say, about China:

‘[W]e should avoid the temptation to attach the wrong meaning to the title. China has become the world’s largest exporter primarily because the global division of labor that has helped reduce the burdens of poverty and create greater wealth still prescribes for China the role of lower-value-added production and final assembly operations in global production/supply chains.’

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