JAL’s Onishi targets turnaround

Japan’s most recognisable recent Prime Minister, Junichiro Koizumi, succeeded in large part because he was a pragmatist. By confronting several of Japan’s structural problems, he won a landslide election for his Liberal Democratic Party.

This article orignally appeared in Asian Aviation magazine in December 2010

Masaru Onishi, president of Japan Airlines (JAL), has a similar task ahead of him: facing up to the structural issues that saw the former national carrier of Japan file for bankruptcy protection in January, after losses of nearly 100 billion yen (US$1.2 billion) in a single quarter. His main priority is to change the mindset of JAL employees from that of quasi-governmental salarymen to employees of a competitive, efficient airline.

Onishi avoids comparisons with US Chapter 11 bankruptcy-protection laws that have been criticised for unfairly sheltering failed carriers from outside competition.

“I don’t know Chapter 11 rules well enough. I know our own corporate rehabilitation law better,” he says. These conditions include a pledge to repay the 300 billion yen cash injection the company has received within seven years and slash its workforce by a third.
JAL’s 730 billion yen debts were also wiped out as part of the deal with the government-backed stimulus fund, the Enterprise Turnaround Initiative Corporation of Japan, thus reducing working capital to zero.
Onishi has experience in working with cash-strapped entities, having come in to the presidency from running JAL’s regional airline subsidiary Japan Air Commuter. He is joined at the helm of JAL by new Chief Executive Kazuo Inamori, founder of both ceramics giant Kyocera and telecommunications supplier KDDI.

While Inamori has an outsider’s view of the restructuring, Onishi has the aviation experience to ensure the carrier does lose more market share to All Nippon Airways (ANA), which already leads domestically. Onishi and his board are waiting for the Japanese courts to authorise JAL going into administration, although work has started already to transform the company.

Onishi is bullish. “We will try to repay the loan quicker than the seven years,” he says. He adds he is confident that other developments in Japan’s aviation sector, such as the opening up of Tokyo’s Haneda airport to international routes, will help in reviving the carrier’s fortunes.

The airport’s new international terminal opened in October and airlines were queuing up to get their services into the airport, which is just 14km away from central Tokyo, compared with 58km for Narita International Airport. Around 100 new services to points in Europe, North America and Asia are scheduled to start before mid-2011.

JAL is in the best position to capitalise on the airport’s development, Onishi says. “We have the biggest domestic network and our hub is Haneda,” he points out.

Still, Onishi’s top priority is to change the mindset of the workforce, which will be a challenge given JAL’s history as a government-owned carrier. “The mentality was not only to pursue profit but only to be cautious. We have to realise that we’re a commercial business and this needs to be the priority for all staff,” Onishi says.

There will be casualties, with the workforce set to be reduced by 15,700 employees. Onishi and Inamori must then try to expand the business without replacing these staff members. The airline chief’s second priority is to keep the business as small as possible, running on minimal costs.

“We need to be a very lean company; at a business unit level and at an individual level as well as an enterprise,” he says.

The third priority on Onishi’s list is to establish a system of communicating feedback throughout the company, so that every employee knows the current standing of their business unit, their department and the entire company. “Everyone needs to know the results to be involved,” he says.

Such thinking would be typical of a US firm, but is still radical in a Japanese business, especially one that started out as a government-owned enterprise. Onishi’s plan is to reset the priorities of workers more familiar with bureaucratic procedures than chasing business opportunities.

Onishi would clearly like to go further than the airline’s rather conservative restructuring programme sets out. He talks of setting up California-style thinking cells within business units to drive new projects, and the ruthless pursuit of cost savings. Yet he says no other airline in the world offers an adequate business model to follow.

“Our management studied lots of models but did not find one to base ourselves on,” he says.

The new board of JAL is promoting a “bottom-up” flow of ideas, attempting to shape an agile, lean company that takes good ideas from workers on the ground. Such practices work at egalitarian outfits like Ireland’s Ryanair, but in a hierarchical structure such as JAL’s this may be tougher to put into practice.

Yet Koizumi proved that the Japanese can accept change – once convinced, coerced or charmed into doing so. The former prime minister was capable of all three approaches. At JAL, Onishi will have to emulate Koizumi’s skills if he is to turn the business around.