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Four Lessons from the Demise of Japan Airlines

Joseph Lee

On January 20, 2010, the New York Times and all major Japanese papers reported the bankruptcy filing of JAL (Japan Airlines). The crane that once symbolized Japan’s powerful national airline is no more. Not even privatization could help an airline run into the ground by arrogance and incompetence.

But this is actually old news—everyone knew this was coming. The activities of the Enterprise Turnaround Initiative Corporation of Japan (ETIC), a new government body “with broad powers and a five-year mandate to revitalize Japan’s ailing regional economies,” were being reported on in the media every day.

We knew that the old CEO was a goner when Kyocera Honorary Chairman Inamori, a well respected old-timer, was dragged out of retirement into the frenzy. The appointment was supposed to add credibility to the so-called management team.

Lesson 1: Getting Bill Gates to run a bankrupt United Airlines doesn’t make too much sense, does it?

Likewise, the government’s plan of slashing 15,700 employees, mothballing all of JAL’s 747’s, and drastically reducing the debt were, perhaps, necessary steps, but hardly the foundation of a successful enterprise. In fact, we have no idea what JAL will be doing to continue as a viable player in the airline community going forward.

JAL was going to “hold shareholders accountable” by wiping out the entire capital. The only problem was that a bunch of those shareholders were individuals whose worthless stock gave them the only thing that mattered to them—special discounts to fly JAL.

The ETIC was going to ask hard sacrifices from employees by eliminating a third of the work force. They could have saved even more money by eliminating 90% of the work force, but then there wouldn’t be enough people to wash the planes. Retirees were also arm-twisted into accepting sharp reductions in their pensions. By focusing so much on teaching existing stakeholders hard lessons, perhaps the ETIC forgot that it was turning the airlines biggest fans into, well, mere stakeholders.

Competitive Fall-Out

I’m sure Delta and KLM Royal Dutch Airlines are lobbying hard for JAL not to dump all the Asian routes so that the sky won’t fall off the Sky Team label. All Nippon Airways (ANA), which was lobbying for JAL’s “good routes,” immediately did the brotherly thing by issuing a press release announcing the unfairness of a rival carrier being propped up by government money without any accountability. But ANA should be happy that JAL is alive. Toyota found out the hard way that being number one is not a guarantee of profitability.

Lesson 2: Competition is always good—it keeps management on its toes.

In the world of corporate governance, we love to use the words transparency, accountability, and independence as if they are sacred. They’re like the holy grail, but better. The members of ETIC, all experts in their own right, reported back daily on what they were doing. They demanded that all those key words be satisfied. But perhaps they forgot what stood behind them—transparency is not a goal, and neither are accountability or independence.

Lesson 3: The goal should be for companies to have sound managers making sound business decisions for the benefit of its shareholders.

Soon, the Japanese tax payers will be the shareholders of the collapsing crane. The US bail-out of GM will look like an investment in gold compared to the deal that the folks in Japan will get.

Capitalism Always Wins

I wrote a novel 4 years ago about the Japanese airline industry except the roles were reversed: A US airline was failing and was rescued by a Japanese company. The plot revolved around a major US airbase being returned to Japan as part of a big conspiracy by two airlines to dominate the trans-Pacific routes. My publisher in Japan has now moved up the release date of the paperback version of my book a few months to capitalize on the excitement over JAL.

Lesson 4 (perhaps the greatest of them all): There’s always someone waiting in the wings to capitalize on other’s misfortunes.

Joseph Lee is an adjunct professor at the Graziadio School of Business and Management and Peter Drucker & Masatoshi Ito Graduate School of Management, where he teaches a course on management consulting. Read his blog at

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Women Entrepreneurship in Japan by Charla Griffy-Brown, PhD and Noriko Oakland

Author of the article
Joseph Lee, Adjunct Professor
Joseph Lee, Adjunct Professor
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