Japan Airlines struggles to survive; will cut 6,800 jobs and seek foreign flag investment

Financially battered Japan Airlines announced Tuesday that they plan to trim their work force by 6,800 jobs, eliminate some routes and move as quickly as feasible to raise emergency funds from a foreign carrier. Both Delta Air Lines and American Airlines are in the running to acquire a stake in JAL, which lost $1 billion in the second quarter of this year.

Word on the street also has JAL in discussions with KLM-Air France and Korean Air about a possible minority investment in the carrier. As the largest Japanese airline who has already received three government bailouts this decade, JAL has been struggling to stay alive as the domestic economy continues to be very weak.

Haruka Nishimatsu, the president of Japan Airlines, told reporters that a reorganization of routes, including the cessation of service on money-losing city-pairs was a necessity for the company to survive. The airline is planning a drastic survival plan which they hope will be positively received by the financial investment community. A cash infusion is needed soon so that the airline can acquire newer, more fuel efficient aircraft.

Delta teamed up with JAL would add tremendous power to the American carrier’s trans-Pacific and Asia route system which was primarily developed by Northwest Airlines, which Delta acquired late last year. Such a deal would adversely affect American Airlines which would probably lose its code-sharing agreement with JAL in the process. American’s lack of an Asian hub makes holding onto the agreement with JAL all the more important.

With Japan Airlines perceived as being poorly managed for a long period of time, any financial connectivity between a healthier airline and the Japanese carrier is seen as a rather risky proposition. But, on the flip side, it may be even riskier to lose the relationship altogether.