Terrie's Take 551 -- JAL's Tie-up: Who Will it Be? ebiz news from Japan

Sun Jan 31 17:52:12 JST 2010

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, January 31, 2010 Issue No. 551

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

On January 19, JAL went bankrupt, an event that has sent
shock waves through Japan's financial sector and the
government -- partly because this has been the largest
non-financial business failure in Japan's history, and
partly because many sacred cows have been sacrificed to
save the company. Amongst the bovine offerings have been
reputation, pensions, bank and government debt, and yet to
come, planeloads (30%) of employees who will become
redundant.

Overall, JAL has an unbelievable JPY2.32trn of liabilities
tied up in the bankruptcy, of which about JPY867.6bn of
negative worth will survive the court-led restructuring to
March 31st, the last day of JAL's fiscal year. Amongst the
losers have been the nation's major banks, who will forgive
JPY350bn in loans; bond holders for another JPY380bn; the
government partially covering the DBJ's losses of JPY40bn;
Japan's 6 biggest trading houses which have written off
around JPY80bn in stock losses; thousands of vendors to JAL
for everything from fuel to food; and of course the general
public for billions more.

JAL shares sank to one yen last week, in anticipation of
the company's February 20th delisting and following an
announcement by the government's turn-around agency, the
Enterprise Turnaround Initiative Corp. of Japan (ETIC),
that there would be a 100% capital write off.

Basically it's a huge mess. And yet for some it's also an
opportunity.

[Continued below...]

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[...Article continues]

Firstly, it's an opportunity for the government to set a
precedent on pensions.

We note with interest that in the weeks prior to the
bankruptcy the government announced the company would only
be able to reorganize (versus being shut down) if the
company's staff and retirees agreed to massive cuts in
their pensions (30% for retirees, and 53% for those still
employed). Until now, pensions have been sacrosanct and
therefore typically have survived any reorganization style
bankruptcy. We imagine that the ETIC strong-armed
representatives of these two pension holder groups and
gave them the option of the haircut or possibly getting
nothing at all due to the company's massive negative net
worth. Not surprisingly they took the cuts.

But what was surprising is that we've not heard the
government step up since and say they'd make good the
difference. This tells us that not only is the government
serious about turning JAL around, but that they're sending
a signal to the public: "pensions are fair game in economic
hard times". We would not be surprised to see this issue
reappear with increasing frequency now that this rubicon
has been crossed, and will no doubt be invoked in the
future once the pension funds run out of money -- something
that may happen as soon as ten years from now.

*****
Secondly, it's an opportunity for foreign airlines to
leverage their way into and over Japan

For many years, the U.S. and its major airlines have been
pressuring the Japanese government to open up her
international flight routes, the so-called Open Skies
policy, so that U.S. carriers could connect to as many
other destinations in Asia as they like without
restrictions, other than landing slots, from Japan.
Needless to say Open Skies had been viewed as threatening
to Japanese airlines and so it didn't happen... until late
last year.

With the JAL problem looming, the government suddenly
realized that foreign help might be necessary to restore
the airline to profit -- particularly in providing routes,
flow of customers to Japanese domestic connections, access
to premium foreign airport hubs, systems, expertise, and
big chunks of investment cash. So they quickly moved to
finalize (on December 11st) the details for an Open Skies
agreement. The actual Open Skies agreement can't take place
until Japan meets certain terms and receives a blessing
from the U.S. Department of Transport (DoT) that it will be
immune from future anti-trust proceedings. The Japanese
press say that this will happen by October 2010.

We think they are much too optimistic.

To meet the Open Skies criteria, an important factor is for
two Japanese airlines to be part of an international
airlines network. ANA is already in Star Alliance with
United Airlines and others, and until now, JAL has been in
a long-term relationship with American Airlines in
Oneworld. However, Delta, a much bigger airline than
American made a bid to become the newly restructured JAL's
partner, and for most of January the Japanese media,
including the Nikkei, has been saying that JAL senior
management, ETIC, and even the Japanese government now
prefer Delta's Skyteam to American's Oneworld.

Probably like most other people watching the media in
Japan, we thought it was a done deal, and that Delta had
the nod other than for some rubber stamping by DoT in the
U.S. However, it turns out that the situation is not
finalized at all. DoT took the unusual step last week of
ringing the Japanese consulate in Washington to make it
clear that DoT and DoT alone would decide which JAL
potential suitor, Delta or American, would get the
antitrust approval. The Wall Street Journal got to hear
about the call and published a related story soon after.

This certainly throws an interesting spanner into the
works, because while Delta is apparently favored due to its
larger network of routes and cities, it also means that a
Delta-JAL tie-up will account for more than 60% (if you
include Northwest now owned by Delta) of air traffic
between Japan and the U.S. This, versus 30-something % for
an AA-JAL deal.

60% of all air traffic does not sound like an antitrust
shoe-in to us.

Also, one wonders if the Japanese government has considered
properly the implications of a Delta tie-up? For example,
is Delta going to dump its Korean Airlines relationship?
Probably not. So what level of overlap will there be
between KAL and JAL once they start competing for business
in north Asia, in the new world of a Delta relationship?
We're betting that JAL will lose out to KAL big time, and
that those 15,000 job cuts already planned will be just the
start of a much bloodier downsizing. This doesn't sound too
promising for a semi-government owned enterprise trying to
look out for its employees.

We expect more developments in this interesting tussle.

...The information janitors/

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+++ NEWS

- 8 nations urge Japan to sign Hague Convention on child abduction
- Job openings sink to record low
- Baidu-Rakuten to make j/v shopping mall for China
- Japan credit rating to fall?
- Long lines to get kids into kindergartens

-> 8 nations urge Japan to sign Hague Convention on child abduction

After years of ignoring the problem it's great to see the
embassies of a number of countries are starting to push
Japan to sign the Hague Convention on child abduction.
Japan is the only G7 country which hasn't signed, and
there have reportedly been up to 10,000 cases over the last
several decades of Japanese spouses running back to Japan
with the kids to escape custody laws from other countries.
Representatives from the U.S., U.K., and 6 other countries
met with Foreign Minister Katsuya Okada to urge him to sign
the treaty. ***Ed: This is a shameful situation, as
highlighted by the Chris Savoie case last year, and one that
despite the extensive domestic legal overhaul that will be
necessary to make a Hague signing actionable, needs to be
implemented.** (Source: TT commentary from bloomberg.com,
Jan 30, 2010)

http://www.bloomberg.com/apps/news?pid=20601101&sid=aBa76ZSf3KAY

-> Job openings sink to record low

According to the Ministry of Internal Affairs and
Communications, the 2009 average number of job openings to
job seekers fell to a 46-year low, at 41 openings per 100
job seekers. This is the lowest ratio since the ministry
started surveying the market in 1963. The 2009 averaged
unemployment rate was 5.1%, or around 3.36m people. ***Ed:
The market has since recovered a bit, and in December there
were 46 jobs for every 100 job seekers. Unfortunately, many
of those seeking jobs are not qualified for what is
available.** (Source: TT commentary from indiatimes.com,
Jan 30, 2010)

http://tinyurl.com/yjvnd9h

-> Baidu-Rakuten to make j/v shopping mall for China

China's leading search engine company, Baidu, and Japan's
largest online shopping portal, Rakuten, have announced a
joint venture 51% owned by Rakuten to establish an online
shopping mall in China. The two companies said they would
infuse the new firm with US$50m of capital over the next 3
years. Rakuten currently has more than 30,000 stores on its
Japanese web site, a number that should be easily eclipsed
in China. The Chinese online shopping market is growing
rapidly, rising 93.7% last year to approximately 100m
Internet users, and by value around CNY248.35bn by the end
of March 2010. (Source: TT commentary from
tradingmarkets.com, Jan 27, 2010)

http://tinyurl.com/yjxxz29

-> Japan credit rating to fall?

Standard & Poor's Ratings Services has said that it might
downgrade Japan's credit rating if the government doesn't
take measures to reduce debt and improve growth. The
current rating is AA and would fall to AA-, a rating level
just one notch above China's and below more than a dozen
other countries. (Source: TT commentary from
marketwatch.com, Jan 26, 2010)

http://tinyurl.com/y8cnh5f

-> Long lines to get kids into kindergartens

A good Nikkei article last week covered the chronic
shortage of child-care centers in the nation's major
cities, and particularly in Tokyo where waiting lists in
April 2009 hit 7,939 children. The situation is especially
severe for young families where the husband's income has
been cut due to the economy and the mother needs to return
to work. Single mothers apparently get priority for places
that are available and according to the Nikkei, some
married women have been considering divorce so as to
expedite their kids' entry into kindergarten. While we're
sure that this represents an extreme view, none-the-less a
recent Benesse online survey found that 39.9% of mothers
were still unable to find open nurseries and that 56.1% of
those mothers had given up the idea of going back to work
as a result. ***Ed: The beginnings of a new underclass in
Japan?** (Source: TT commentary from nikkei.co.jp, Jan 26,
2010)

http://www.nni.nikkei.co.jp/e/ac/20100125/tnw/Nni20100125TR3HOIKU.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

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** POSITIONS VACANT

- Infrastructure Architect, foreign insurer, JPY8m – JPY11m
- Network Engineer, Global Telecoms Co, JPY5m – JPY7m
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***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

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Tickets at http://en.iwine.jp/californiatasting
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Speaker: Terry Warren, President-Advantage24 K.K.
Topic: Cloud Computing: Fact or Fiction?

Details: Complete event details at http://www.icajapan.jp/
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Date: Thursday, February 18, 2010
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members)
Open to all. Venue is Foreign Correspondents' Club of Japan
http://www.fccj.or.jp/aboutus/map
-----------------------------------------------------------

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

*** No comments or feedback this week.

***********************************************************
END

SUBSCRIBERS: 9,526 as of January 31, 2010
(We purge our list regularly.

+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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