The JAL Bankruptcy — The Day the Wings Were Lost

January 19, 2010. A company that had symbolized Japan’s skies for more than half a century filed with the Tokyo District Court for the application of the Corporate Reorganization Act. Japan Airlines — the former national flag carrier.

A national flag carrier is the airline that represents its country. As we saw in Episode 2, JAL was born as a symbol of postwar Japan reclaiming its sovereignty over the skies, lining up jumbo jets and flying the world’s skies bearing the rising-sun emblem. That company reached an impasse in its management and chose the path of legal restructuring. Its total liabilities, together with two affiliated companies, are reported to have reached about 2.3 trillion yen, becoming the largest bankruptcy of any operating company in the postwar era. Many people likely received this news while overlaying it on their own memories.

Why Did the Wings Grow Heavy?

The reasons a giant company tilted cannot be condensed into one. They are said to be the result of multiple factors that piled up over a long stretch of time.

What is often pointed to is a structure of high costs. The burden of personnel expenses and pensions was heavy, and circumstances in which the company could not easily withdraw even from routes whose demand had thinned are said to have pressed on earnings. In the course of its history as a semi-governmental, semi-private entity, it is also said that there were aspects where a policy role was prioritized over profitability, though the assessment of this varies.

On top of that, shocks from outside overlapped. Rising fuel costs from surging crude oil prices, a chilling of demand from the global financial crisis of 2008, and further a downturn in passengers from the spread of infectious disease. JAL, with its high proportion of international routes, is said to have been greatly shaken by these waves of the global economy. The heaviness of the structure held within, and the repeated headwinds from outside. When those two overlapped, the giant wings could no longer endure, many reports convey.

The State’s Involvement, and One Manager

Leading the rehabilitation was an organization called the Enterprise Turnaround Initiative Corporation of Japan, established with joint public and private investment. The corporation decided on support, and under a public framework, enormous funds and personnel were poured in.

There was debate over this involvement of the state from the time itself. There were said to be objections to public support being used to rescue a single company, and voices questioning fairness with rivals flying the same skies. As will be touched on later, it was also reported that on the side of competitor ANA, a position was shown expressing concern over an imbalance in competitive conditions. Whether the rescue was right is a question on which views divide depending on one’s standpoint.

And there was one more person who became a symbol of the rehabilitation. Kazuo Inamori, the founder of Kyocera who also undertook DDI (a business that would lead to today’s KDDI). Inamori, already advanced in age, is said to have taken on the chairmanship of Japan Airlines without compensation. Why was a manager who did not come from the aviation industry entrusted with rehabilitating the airline that represented the nation? Much attention gathered on his skill.

Amoeba Management as a Prescription

What Inamori brought in was a method called ‘Amoeba Management’ that he had built at Kyocera.

Amoeba Management is a mechanism in which a company is divided into small units (amoebas), each of which grasps its own profitability and operates with responsibility. In the JAL of before, it had been pointed out that the field found it hard to feel how its own division’s figures connected to the company’s overall profit and loss. Inamori is said to have sought to root a culture in which each employee was conscious of profitability and thought and acted on their own.

Together with this, Inamori is said to have had a way of thinking about management called the ‘Philosophy’ shared across the whole company. For what purpose do we work, and how ought we to be? The spreading of such ideals proceeded at the same time as painful reforms such as withdrawal from unprofitable routes and reductions in personnel. As a result, the JAL of the rehabilitation period is reported to have recovered its earning power, going so far as to post profits said to be at record-high levels.

Yet a cautious eye is needed for the assessment of this rehabilitation as well. The recovery of profits in a short period is pointed out to have been supported in part by conditions such as the compression of debt through public support, tax preferences, and airport slots. Not only the manager’s skill, but how much did institutional backing take effect? It can be said that caution is needed against reducing the story of rehabilitation entirely to the achievement of a single hero.

From Delisting to Relisting

In the course of the collapse, JAL’s shares once withdrew from the market. The listing was abolished in February 2010, and most of the people who had held shares until then are said to have lost the greater part of their value. This is the shadow side of the rehabilitation, and it tells of who the collapse brought what pain to.

Even so, the company kept flying, and the rebuilding advanced. And just about two and a half years after the 2010 collapse, on September 19, 2012, Japan Airlines lists again on the Tokyo Stock Exchange. Its opening price upon returning to the market is reported to have slightly exceeded the offering price. It was a form in which the market accepted the sight of a company that had lost its wings taking flight once more under its own power.

And so Japan Airlines, from a collapse said to be the largest of the postwar era, returned to the market in a short span. The national flag carrier, in exchange for pain, came back to the skies once more.

Yet there is one more perspective to this story. During the very time JAL was being driven by collapse and rehabilitation, what was the other set of wings flying Japan’s same skies doing? A company that had long remained the latecomer challenger was seizing its chance and trying to beat its wings powerfully upward. And during that time, the other set of wings was beating powerfully upward.