Japan Airlines Gets New CEO As Bankruptcy Looms

January 13, 2010

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Kazuo Inamori, the founder of electronics maker Kyocera, agreed on Tuesday to become the new chief executive of Japan Airlines, as the carrier's shares dropped ahead of its expected bankruptcy.

JAL is likely to file for bankruptcy as early as next week as part of a broader restructuring aimed at reducing debts, cutting about 13,000 jobs and up two dozen unprofitable routes, sources have said.

With USD$16 billion in debts, JAL's bankruptcy would be the sixth largest in Japan's history.

Inamori, the 77-year-old honorary chairman of Kyocera and an ordained Buddhist priest, will replace Haruka Nishimatsu, who has indicated he would resign as part of the restructuring overseen by a government-backed fund.

Founded in 1959 as a ceramics company, Kyocera has grown into one of Japan's most profitable technology firms. Its products include semiconductor components, mobile phones and solar cells.

Lack of experience in the airline industry may initially hinder Inamori's efforts, but it would not be a critical drawback, analysts said.

"I think he's a right person for Japan Airlines at this point since Japan Airlines needs a respected person for its business restructuring," Yasuhiro Matsumoto, senior credit analyst at Shinsei Securities.

"For the time being, the government has agreed to offer financial support for Japan Airlines, so we should not worry about how long it would take for him to become more familiar with Japan Airlines."


In massive volume, JAL shares tumbled by their daily limit of 30 yen on Wednesday to 7 yen, leaving Asia's largest carrier by revenue with a market value of USD$208 million, about the same as Tunisair and Austrian Air.

That is less than the cost of a Boeing 747-8 wide-body commercial airliner.

The Enterprise Turnaround Initiative Corporation of Japan (ETIC), the state-backed fund, plans to put about JPY300 billion (USD$3.29 billion) in fresh capital into JAL, provided it files for bankruptcy and its banks forgive about JPY350 billion in debts, sources have said.

Normally a bankruptcy would lead to a delisting and render shares worthless.

"It is highly probable that JAL will have its capital wiped out when it files for bankruptcy," said Shinsei's Matsumoto.

Besides being an entrepreneur, Inamori has a track record as a corporate turnaround specialist.

A decade ago, Kyocera made failed office equipment maker Mita Industrial its wholly owned subsidiary and helped its recovery. The entity now is a profit-making operation, with more than JPY200 billion in annual sales.

In 1984 he established the predecessor to KDDI to take on former telecoms monopoly NTT.

KDDI now is Japan's second-biggest telephone operator.

Analysts said major hurdles remained to turn JAL around.

"JAL has been encumbered to serve 108 airports, when there is no economic justification for some of the airports in the first place. As a regulator, you're not going to tell them no," said Lance Gatling, president of Nexial Research, a consultancy.

"The question is whether any management can come in and undo any of these traditional relationships," he said.