JAL's decline a mirror of old Japan

THE flight to bankruptcy court of Japan Airlines (JAL) is sad. Not for the industry, as outsized airlines are better overhauled if not culled, but for what it says about an old habit in Japan of bureaucrats directing private industry in operational matters they should not poke their noses in. After it has made cuts in manpower (about 15,000 jobs to go) and business operations, and possibly have a chunk of its US$25 billion (S$35 billion) debt forgiven, a lighter JAL should be able to fly under its own steam. The planned business reorganisation under a respected industrialist, Mr Kazuo Inamori of Kyocera Corporation, will be an overdue departure from the four government bailouts the airline had received in the last decade. Those were cases of money down the drain to maintain bloat, while reform to operations was scarcely attempted.

For the global air industry, the rehabilitation of failing airlines like Swissair has been for the better. About a hundred airlines have been through bankruptcy reorganisation in the last three decades. Consolidation has been patchy. The International Air Travel Association says the industry is still adjusting to new travel and business patterns, like how no-frills carriers have changed travel habits and opened up marginal tourist destinations.

For Japan, JAL's decline should serve as a lesson in how the state bureaucracy should be shorn of absolute discretion in managing industrial clusters as if they, not entrepreneurs, were the business minds deciding how to deploy shareholder funds. That was a working arrangement going back decades between governments of the conservative Liberal Democratic Party and key ministries like finance, trade and construction. JAL had been privatised since 1987, when early signs of Japan's decline began appearing, but the Transport Ministry was still titular master of the flag carrier. Mutual back-scratching in civil aviation between LDP chiefs and the bureaucracy had consequences for JAL. For illustration, dispensing of patronage meant Japan has more airports (about 100) than the custom. Poor JAL was under orders to service unprofitable domestic routes. Staffing was another state prerogative. The planned shedding now of a third of the airline's 52,000 workforce will be a revolutionary stroke which other overmanned sectors will be watching for leads.

The new Democratic government of Prime Minister Yukio Hatoyama has been brave to cut JAL loose. It is being faithful to its promised governance model of wresting the policy initiative back from bureaucrats. The JAL case is an important indication of what is possible in a new ideological regime. But it is not time yet to say whether this can develop into a trend.

Source: Straits Times, 20 Jan 2010.

Comment by Property Maestro (PM):

What an irony! Of all Japanese corporations to fall, it has to be JAL. Consider these:
a) It is the national carrier;
b) Japan had superior air supremacy in WWII;
c) Japan's growth was largely heralded by its expansion and development of great engines;
d) Deming's re-fashioning of Japanese quality in service and products blossomed in Japan; and
e) Toyota's Total Quality Management and Just In Time systems were quintessentially Japanese.

What else will fall next? The AV industry? Banzai!