OneWorld Breathes a Sigh of Relief

JAL Stays with OneWorld and announces AA as its "new" partner.

In what the WSJ called a "come from behind" victory for AA - it would seem the legal risks became the big issue.

Anti competitive restrictions could have been pretty intense. There were 2 challenges. AMR had already threatened a protracted legal battle if Delta teamed up with JAL. And the other issue would have been a potential anti-competitive challenge.

So OneWorld can breathe a sigh of relief. However does this make JAL better or (more correctly in y opinion) more viable? The jury will be out for a while on this one.

Cheers

Its Offical - JAL Defects To Skyteam

Well Not Quite Official but on Monday according to many sources in Japan it will be.

So let's look beyond the headline and consider the impact. For JAL its not business as usual no matter what happens. The airline is in deep trouble and the lifeline it has now is not without limits - least of which will be time.

OneWorld will take a major blow as a result of the defection. American is not likely to take this lying down so we can expect there will be some legal knots to work out. This will take some significant amount of time.

Skyteam like Star is developing a two tier membership. JAL and DL will develop a formal Transpacific Immunity Pact that will mirror the ANA-UAL pact and indeed it will resemble the Trans Atlantic Immunity requests that have resulted in pacts on the Transatlantic such as A++ (LH, UA, AC and CO) and the Skyteam version (DL, AF/KL).

The obvious strengthening ties between the various hubs will occur however perhaps we can peer beyond this and look at the impact on lesser members of the Alliances. If OneWorld is to remain viable AA and BA have to get closer. Also they have to find another Asian Partner. KAL and CA are interesting possibilities. If Air China can tolerate Eva Air the surely CX can coexist with either KAL or CA. However QF may emerge as a powerful force not through mainline but through the footprint of JetStar.

There is going to be a lot of shuttle diplomacy over the next few months as the carriers jockey for position in their respective relationships.

With the opening up of markets in Asia - indeed Open Skies coming to the ASEAN nations - we can expect competition to emerge and indeed start to make a lot more sense with the lowering of tariffs and freedom of movement improving.

It will be interesting. For now - let's sit back and watch the battle for Japan play out.

Cheers

JAL: Gloves vs. Honey from OneWorld

So having tried to sweeten the pot to (by some reports) nearly $2Billion, the OneWorld group are now resorting to some subtle and not so subtle threats if JAL moves to rival alliance Skyteam.

According to Aviator.Aero:

American Airlines warns alliance partner Japan Airlines JAL of lengthy and messy fight if it switches allegiance to Delta Air Lines.

Ouch

Cheers

JAL To Ditch 747 Fleet and 1/3 Work Force

In the restructuring plan - JAL plans to drop it gas guzzlers and focus on a much smaller fleet. Dropping 37 (current numbers) of the 4 engine planes. At one stage JAL operated the world's largest 747 fleet.

As noted I believe they will also drop the A300s left over from JAS but that has not yet been confirmed

They now have a noted leader in Dr. Kazuo Inamori. He founded Kyocera, DDI (now KDDI) His website also lists his founding of numerous other enterprises, and he established the Inamori Foundation and created the Kyoto Prize, a prestigious international award. He also serves as president of Seiwajyuku, a business leadership association dedicated to nurturing business owners and entrepreneurs. This website introduces Kazuo Inamori and his wide range of ongoing activities.

He is well known both inside Japan and outside.

He now has the task of restructuring the national icon. He will carry the necessary support of the Government and of course his prestige will be very important in order to effect the level of changes necessary.

Things are looking good for the program - however the battle for the international partnership remains an undecided element. With the old CEO Haruka Nishimatsu gracefully bowing out the deal will be re-evaluated.

The OneWorld alliance has sweetened the pot now valued at up to $2billion and at last Qantas and CX have joined AA and BA. However the numbers do not look good for OneWorld. The benefits of a DL/Skyteam alliance far outweigh in traffic terms the value of the OneWorlders in my opinion.

With the contentious issue of the pensions out the way and the banks in line - the way is now paved for a smooth court arranged administration trip through bankruptcy.

So down to the wire, but it is looking much healthier for a leaner JAL. Will it be smarter? Let's see and hope it happens.

Cheers

JAL Stock Almost Worthless, BA Steps Up Noise

BA is offering benefits to JAL valued at between $164-240 Million - surprisingly roughly what the DL arrangement will deliver. However examination of the deal shows that it contains something that JAL doesn't really want. Not that BA has a lot of cash to dole out anyway given its pension deficit.

For example slots at LHR. Especially since JAL canceled one of its flights to LHR in 2009 to save money - so it already has a daily slot available!!!

Still the offers are getting tempting. With the cash deal now gone, OneWorld partners are scrambling to secure the ailing (see stock charts!!!) carrier. However noticeably quiet in all of the conversations has been Cathay Pacific. Actually the Hong Kong based carrier stands to gain if JAL exits the alliance.

So the battle continues. But I stand by my prediction that DL will win bar some last minute squeaking. And there does seem to be a lot of it...

Cheers

Its All Over Bar The Shouting

So the die is cast for JAL. The rather less than public wringing of hands by their CEO has not stopped the inevitable filing which is now expected in days for an organized Bankruptcy for the venerable Japanese carrier.

The likely impact.

Parking of the A300s and likely some of the 747s will happen in my opinion. Whether the MD80/90s survive will be debatable. Frequencies will be paired initially on some key routes. Look for Japan Europe to get a significant ax. Non-Tokyo international Services will also see an ax. Cargo will take yet another hit. Other candidates include the 767-200s.

The pairing of the staff numbers will likely cause a strong reaction among the staff but an acceptance of the issues will emerge pretty quickly. The latest numbers being discussed is approx 16,000 or one third of the current work force. Look for swinging cuts in the HQ areas. The current CEO will likely step down with a formal turnaround artist brought in - possibly a non-Japanese.

The new Alliance will likely follow pretty quickly especially now the cash issue is off the table - Delta and Skyteam look like a shoe in now.

JAL is going to great lengths to brief their corporate customers to keep them happy. Until the uncertainty is resolved any contention will be a cause for booking away from JAL - we could see plating away from the direct 131 code in the near term.

Cheers

JAL Bankruptcy Jan 19?

Associated Press (AP) is reporting that JAL's primary creditor an organ of the Japanese Administration has given the green light to a court organized bankruptcy reorganization.

Some of the measures sound pretty drastic. For example employee cuts of 13,000 staff.

This is just the focused and swift action that is required.

Fingers crossed

Cheers

AA Tries Belatedly To Up The Ante For JAL

After its lackluster effort promising exclusivity to JAL, AA has put its hand in its pocket (or probably more correctly into TPG's pocket) and pulled out a further $300 million. Which takes the total to $1.4Bn it is prepared to offer to invest in JAL and retain JAL in the OneWorld fold. And in a tip of the hat to reality it has offered to add this to the pie irrespective of a Chapter 11 style filing and subsequent reorg.

Will this change the stakes? Is it too late? It certainly does tip the balance more to AA's favour who is by now realizing the cost of losing JAL would be significant.

With a Court Protected Reorg now an almost certainty for JAL - the decision is slipping out of the hands of the management and into ETIC's remit. With the Government now the largest creditor for JAL - this all plays nicely to the traditional way of solving Japanese issues.

JAL needs a major reorg and it needs it now. There is very little time left to effect this without losing some of the good wood as well as cutting the bad.

What Options Realistically for JAL?

There is a lot of speculation - including the Professor's - over what the real options are for JAL. There are also a lot of moving parts. Many who are unhappy that the white knight is coming from across the Pacific in the form of an American Suitor either Delta or incumbent American Airlines. It this group that see a lot of mileage in making ANA into a mega carrier and having it assume many of JAL's current international routes.

I think that this is pie in the sky thinking. The realistic options are few and far between. With the Government clearly stating it will not give carte blanche in writing yet another cheque for the ailing airline - it has few options.

So the likely scenario in my thinking goes as follows.

Firstly Open Skies means that there are few restrictions in letting ANA move into additional markets. It will be up to ANA to decide how to do that but already it has signalled its intentions by forming a transpacific alliance within an alliance with fellow Star carriers CO and UA.

Second the value of Haneda means that an inter-modal hub will be established there giving ANA an edge of JAL. JAL will be hard pressed to compete with its base in remote Narita. Also the international airlines are not going to be happy with having the local carrier enjoy an advantage and will clamour for access to Haneda.

Thirdly - we have to be practical. The current investors in JAL and those who have in recent years lent it money as it continued to bleed are not going to allow a wholesale carve up with them getting nothing in return.

While no one can reasonably muster a lot of sympathy for the airline itself and its financial institutional backers - there has to be some accommodation. The government bought some more time by agreeing before the markets opened today in Tokyo to double the amount of financial guarantees and cash that will enable JAL to stay afloat after a round of news stories over the past week that said both ANA would be acquiring some JAL routes and that the Government was going to enable a bankruptcy based reorganization.

JAL president Haruka Nishimatsu in a published interview with the Asahi Shimbun newspaper yesterday that he was opposed to any bankruptcy filing including "legal liquidation" and also had no plans to halt international flights. That is said after JAL has already announced or already pruned several cities and routes. On Thursday another Japanese paper the Mainichi Shimbun reported that the government was considering a plan which would see rival All Nippon Airways take over JAL's international flights. This plan was dismissed with derision as "impossible". Indeed such a decision at this time would be counter productive given the slow resurgence of traffic. Remember that Asia Pacific traffic was very badly hit in the Recession last year.

JAL is already on the record favoring a switch to a partnership with Delta and Air France from the OneWorld group of American Airlines for the reasons I have laid out before.

So there really isn't much choice or maneuvering room. JAL cannot recover from its current situation with external help. it's debts and obligations are too great and its need for radical restructuring too hard without a legal form of protection from both existing contracts with labour and a reduction in the bloated and expensive current operations cost load. A restructured arrangement with the banks taking shares in the newly restructured carrier and the existing shareholders - many of whom are small shareholders who must see their share percentage fall. Given the almost junk bond status of its debt and the penny stock basis of its current stock - there is little that anything other than a legal restructuring can accomplish. Its market cap is now worth a little more than a quarter of its competitor ANA. Fall of more than 80% since the halcyon days of 2006. I firmly believe that the ETIC board must move swiftly to act and recommend a form of restructuring akin to the US Chapter 11 for the sick carrier.

Only with this process and a clear plan can the form national carrier survive in any form. There needs to be no more bickering or prevaricating. Rome is decidedly burning and Nero and his friends better move out of the way.

Cheers

Not A Great Day For AA/OneWorld

All humour aside, OneWorld received two bits of bad news yesterday.

Firstly from Asia came the news that the Japanese Government is unlikely to provide a full bailout for JAL. JAL's stock in recent days has risen on reports that Delta has won the dance card of the old lady JAL.

Then today the US Dept. Of Justice nixed the BAAABI (BA, AA, Iberia) Alliance. However this is last one may not be that bad. The DoJ also tried to nix the CO/Star Alliance partnership. The DoT is the ruling authority in the case. They could well do the same and rule in American's favour.

Finally our hope is that the injuries sustained in the accident to AA 331 are minimal - so far there are reports of injuries but no fatalities. The aircraft (Boeing 737-800) whose route was DCA-MIA-KIN, broke in three pieces after a landing overrun tonight in what was pretty foul weather. So far 40 injuries have been reported and 3 possibly serious. The aircraft has been reported to be one of the older 738s in AA's fleet.

Cheers

JAL Gets Lifeline - Short Term - And What of the Future?

JAL - still reeling from the huge losses - has secured a brief lifeline from its troubles. In Japan the line between government and industry is not as clearly defined as in other economies. This is not a criticism - just a statement of observation. The loan was secured from a company (Development Bank of Japan Inc) 100% owned by the Japanese Government's Ministry of Finance.

According to media reports in Japan the size of the loan is over 100 billion Yen (approx $1.1 Billion) roughly equivelent to the past 6 months worth of losses.

Effectively JAL its management and the Government entity charged with fixing broken companies in Japan - Enterprise Turnaround Initiative Corp. of Japan - has 6 months to right the ship. This is hardly enough time for them at the moment to do that. So the clock is ticking.

It seems that a Billion here a Billion there is the game for JAL. The ETI Corp and JAL have three basic tasks in front of them. In a normal economy and in a normal world any of the three would be regarded as a significant challenge. These are not normal times.

The Three Challenges are:

1. Restructure the corporate financial structure of JAL all without appearing to file the equivalent of Chapter 11.
2. Restructure the company work practices and functions to streamline the company and make it effective as an entity against the competition of ANA and in a new more competitive local market.
3. Secure an international partner who will help power the business to a sustainable position outside of the domestic market.

I have commented before that the size and scale of JAL's issues are greater than most people had imagined. The amount of unhappy people will be legion. These range from workers who will lose their jobs, to investors who will lose their stock value to bankers who will also be out their cash. At this point I find it hard from the international perspective to see how American/OneWorld can benefit JAL more than Delta and Skyteam.

Against this backdrop are some interesting negotiations on OpenSkies between Japan and the USA. The new Japanese Administration are getting a baptism by fire. I can only wish for the best for everyone concerned. But as in many cases the answers do not lie in the old ways. The Government of Japan has an opportunity to foster the development of a new order in Air Transport in Japan. Opening the market to Low Cost Air services would be a way to expand the market and ultimately to turn one of the most closed markets into a true example of open competition where land (high speed rail) and air can compete fairly. Lowering the cost of flights to Japan could open up a huge tourist market. Perhaps the Japan of 2010 is ready for this.

Now that's a thought

Cheers

JAL Rescue Plan - A Very Japanese Affair

So the details of the JAL rescue plan are beginning to emerge. And it looks like the former laissez faire solution of the prior Japanese administration is being swept away in favor of a hands on solution with extensive government intervention and involvement. Clearly the banks as I have opined previously are not having the usual platitudes of the management and are demanding the Government put some real skin in the game.

Net result?

Up to 13,000 job losses - previously unthinkable. The Government is reported to appoint an oversee agency to monitor and even drive the changes at JAL.Even this may not be enough. The company is hemorrhaging cash and unable to heal itself.

There will be more to come on this one

Cheers

JAL Pulls Back. Sees Salvation At Home

JAL seems to have gone cold on its need for external support and has slowed the discussions with the OneWorld and the Skyteam opposing teams.

After a certain dance between itself and the new government, it seems that one of them blinked and while the new Japanese government is not promising to fork over large amounts of cash - it does seem that the local financial markets will once again shore up the ailing carrier's balance sheet and cash position, at least for the short term. With the US carriers having taken advantage of the easing credit markets to improve their current positions, the pressure for JAL to do the same thing is becoming acute.

JAL has clearly listened and is starting to cut into the fat. It is pairing routes and frequencies. As the one of the largest 747-400 operators - it can clearly save a lot of money by parking some of those and replacing them with large twins. But the biggest issues remain that the culture within the airline remains a critical obstacle to change and the speed of change.

For that only a new focused management team can actually make the changes necessary for the long term survival of this legacy monolith.

Cheers

JAL Hedges Its Bets. Seeks Bailout

So JAL doesn't seem to be impressed with the response for pleas of help from AMR and Delta. Either they will take too long or the plans don't look good.

Either way JAL has gone cap in hand to the Government.

Japan Airlines (latest) chief executive (of many), Haruka Nishimatsu, met yesterday with Japan’s new transport minister, Seiji Maehara, to discuss the carrier’s future. Nishimatsu confirmed to the media that he had asked the new administration for money, though he did not reveal how much.

Judging by its current predicament - it is burning through about $1 Billion per quarter. it has already announced layoffs of about 7000 which is a deep cut for a carrier like JAL.

Things don't look too good.

The Slashing Season II

Over the past few days more job losses have been announced at several airlines.

Uncharacteristically the latest news comes from 2 airlines not normally associated with layoffs.

Aeroflot and JAL

However between the two of them 9000 jobs will be before the end of the year.

There will be more.

Cheers

LAN Loses Baggage Container To JAL 747

Or better known as LD2 meets outboard starboard engine

At LAX a passing JAL 747-400 pax aircraft sucked in a loose LAN owned LD1 lower deck container. It could have been a LD3 we cannot tell - LAN owns both types. The exact details are on Monday 11 May 2009, a metal baggage container - measuring approximately 5 feet by 5 feet by 4 feet - was sucked into the engine of a Japan Airlines Boeing 747 with 245 passengers from Los Angeles International Airport. The accident occurred about 1:30 p.m. when Flight 61 to Narita, Japan, pulled back from Gate 101 at the Tom Bradley International Terminal. Airport officials said the vacuum created by the air intake of the left outboard engine was so strong it pulled the empty container off a baggage cart that was either parked or driven too close to the aircraft. There were no injuries and other arrangements were made for the 245 passengers and 18 crew members

The result - a great day for Youtube: http://www.youtube.com/watch?v=picE8ZvknpA

The Prize For Bravery Goes to ANA....... First to Fly 787s

In a bid to outdo its competition - ANA has managed to steel a march on both its local competition and probably many different players as well. ANA is braving the flack and commercial risks by agreeing to take most of the first 11 aircraft off the line. I clearly don't think this is hubris and it could turn out to be a very smart move. Given the amount of compensation that Boeing is going to have to pay everyone for the late deliveries - this could also actually increase the cost for Boeing.

Of course we don't know at the moment what the likely performance is of the initial aircraft whether they will be -8s or -3s. I suspect they will be -8s.

There are a few others mixed in. DL has pushed its first aircraft out and ceded a delivery spot to AI. Co I think gets ship #7. It also looks like most of these will be new builds rather than refurbs. Boeing will quietly use the first few aircraft as demonstrators or have an extensive "test" fleet program which will likely not see the initial aircraft going back into commercial operation - at least for quite some time.

it also means that the ramp up delivery schedule is going to be pretty light. Punters are betting on a Pre June 30th (I am not saying which year) first flight. Personally I am still thinking its going to slip still into Q3 (or is that actually Q8 ;-)

An interesting aside here is to consider the dynamics of the order books in Japan. Airbus has been pinning a lot on ANA being the Japanese customer for the A380. As they operating experience with an Airbus type. With JAL's commercials now a lot more stable - this may create on opportunity for Super Salesman John to persuade JAL to take the Airbus jumbo. We shall see.

Cheers

Bidets and Airplanes make a good mix?

I have restrained myself from writing this entry for over 6 months since I first heard that Boeing had put Bidet's on the options list for the 787. Originally I understood it was just for the BBJ version of the aircraft. But no lesser authority than the WSJ: http://online.wsj.com/article/SB118411594813562792-search.html?KEYWORDS=bidet&COLLECTION=wsjie/6month
has confirmed that yes this has in fact been ADOPTED by the two Japanese airlines ANA (launch customer) and JAL. It only remains for Virgin (pardon the pun) to adopt this for it to become a standard accoutrement of all operators.

So all manner of concepts spring to mind. So here are just a few potential PA announcements for you to consider:

1. Use in Turbulence - "Please return to your seat and refrain from using the Bidet while the Seatbelt sign is illuminated"
2. Prior to Landing - "Please return your Tray Tables and Seatbacks to their full and upright positions and refrain from leaving the Bidet on during landing
3. After Boarding before take off - " This aircraft is equipped with escape path Bidets please read the pamphlet in your seat back and familiarize your self with this feature.
4. The return of the gender specific announcement - "Male passengers are requested to kindly remove their shoes before using the Bidet and your accurate aim is highly appreciated

we have a series of illustrations to go with this but as this may be viewed by sensitive folks we will refrain from publishing them

Cheers

Timothy