JAL: Seamlessly Insolvent

Air travel. Doesn't just thinking about it make you slightly nauseous these days? It's gotten so that when things go well on a flight, it's newsworthy. And in my case, it piques a certain suspicion.

The April 7-8 edition of the International Herald Tribune carries a story by Tyler Brule, who found himself "stunned" at "real customer service" from Japan Airlines, as he was embarking from that execrable excuse for an airport known as Heathrow. His flight left slightly ahead of schedule, provoking "looks of amazement" among the passengers. The flight itself met his highest expectations.

To what do we owe this miracle of latterday civil aviation? The article's callout quote extols "Japanese management" -- to my ears, a distrbing echo of the 80s, when Japan had the U.S. running scared, and management pundits everywhere were trying to unscrew the inscrutable of Japan's apparent success.

So what gives? With insolvent airlines all over the world, how is Japan Airlines able to finance such sterling service quality? I won't sugarcoat it for you: they are even more insolvent than most carriers. Specifically, they are $12 billion in debt -- more indebted than any other Asian carrier. A Japanese analyst at Fitch Ratings says that JAL's cash flow is "too weak to support its high debt and capital expenditure plans .... [however] the Japanese bankruptcy regime tends to prevent large-scale corporate failure because of continued bank support ...."

Yep, that good 'ol Japanese management. Failure is not an option. Why, it's almost illegal. Your punishment, if you're caught failing: government support in perpetuity -- a corporate life sentence. How cruel!

I had a friend here in Tokyo who worked for an English conversation school that was bankrupt, owing all its assets and more to a bank, and yet continuing in operation. Their bank was itself bankrupt, and being kept afloat by the Japanese government. And what about the Japanese government anyway? It has the highest ratio of government debt to GDP in the G-7, surpassing Italy in that league long ago.