A struggling airline poses a test for Japan’s new government

WHEN the Democratic Party of Japan (DPJ) took power last month, it declared an end to the cosy relationship between business and government that has long prevailed in Japan. But what does that mean for Japan Airlines (JAL), the national flag-carrier, which was privatised in 1987 and has been bailed out by the state three times since 2001? JAL is asking for yet more state aid, despite having received a handout of YEN100 billion ($1.1 billion) in June.

JAL is bracing for its fifth loss in seven years, after losing YEN99 billion in the most recent quarter alone (see chart). It has around YEN800 billion in debt, not including YEN300 billion in aircraft-lease obligations and YEN330 billion in pension liabilities. There is hope for an investment of YEN30 billion or so from Delta or American Airlines, which want to gain access to JAL’s coveted landing slots in China and to win the business of its international passengers (though old hands at the airline do not want to turn to foreigners, seeing it as a loss of face). The airline has proposed cutting 6,800 jobs (14% of its workforce) and dropping 50 routes over the next three years. It may also cut pension benefits, which could save as much as YEN88 billion this year. …