The Japanese carrier said Tuesday it will strengthen its partnership with American. The two airlines will jointly seek government approval to work closer together to coordinate schedules on trans-Pacific flights, share revenue and carry each other’s passengers — all moves that can boost profits.

The decision brings to an end a fierce tug-of-war over Japan’s ailing flagship carrier, which is restructuring under bankruptcy.

The prize: JAL’s Asian routes and the premium passengers that come with them. For American, that means a potentially bigger revenue stream, more power to help shape overseas customer options and the potential to one day fly its own aircraft and passengers on JAL’s routes.

A joint venture — for which JAL and American must secure antitrust immunity — allows airlines to share costs and revenue on certain flights regardless of which airline owns or flies the aircraft. It differs from a codesharing agreement where one airline bears all the costs but another airline might get a share of the revenue for booking a customer on a flight.

Delta has a joint venture with Air France-KLM across the Atlantic. It wanted to complement that with a similar venture with Japan Airlines across the Pacific.

But the regional dominance of a JAL-Delta tie-up would likely have raised concerns among antitrust regulators about unfair competition and made approval of a venture difficult.

Delta, based in Atlanta, and its SkyTeam alliance currently control 30 percent of U.S.-Japan market share. That would have increased to 54 percent if JAL joined SkyTeam. American and its oneworld alliance partners would have seen their share drop from 35 percent to 6 percent without JAL. The Star alliance, which includes United Airlines, Continental Airlines and All Nippon Airways, has 31 percent of U.S.-Japan market share.

Delta and its partners offered JAL $1 billion to leave oneworld. American and its partners offered JAL as much as $1.4 billion to stay. JAL decided not to accept any cash.

American, based in Fort Worth, Texas, and its oneworld partners plan to deliver to JAL roughly $2 billion in ongoing and incremental revenue over three years.

Delta asserted it remains a big player in Asia.

The Centre for Asia Pacific Aviation, a Sydney-based aviation research group, said American stood to lose more than Delta, which already has a significant presence at Narita Airport outside Tokyo. American never estimated the income it would have lost without JAL and Delta never said how much it would have gained. But American transfers roughly 400,000 passengers annually to Japan Airlines at Narita.

In U.S. trading, shares of AMR rose$1.01, or 13.8 percent, to close at $8.33. Shares of Delta rose $1.14, or 10.1 percent, to close at $12.39.

Observers expect Delta to still strengthen its presence in Tokyo and expand in other Asian markets through its ties with SkyTeam members Korean Air and China Southern Airlines.

A Japan Airlines-Delta alliance would not have changed anything for passengers initially. And neither will JAL’s decision to stick with American.

American will be looking to expand its JAL relationship. That could mean more flight options for travelers. Ticket prices are unlikely to change much because the agreement maintains the status quo.

That could change if the two airlines get antitrust immunity, which isn’t guaranteed. But with the U.S. economy only recently showing signs of a rebound after a deep recession, the airlines would risk losing customers by hiking prices. The recent U.S.-Japan Open Skies agreement means new airlines could enter the market in the future, keeping prices in check.

American’s victory seemed improbable just a few weeks ago when Japanese officials, convinced of the long-term revenue benefits, were pushing JAL toward Delta. But after taking over last month, new JAL chairman Kazuo Inamori insisted management would re-evaluate both proposals from scratch.

JAL felt the process of shifting partners would have confused customers at a time when JAL needs to focus on recovery.

“If we don’t survive the first two years, there will be no future for JAL after the third year of restructuring,” said Daiji Nagai, senior vice president of corporate planning. “We decided that we can minimize risk by staying with American.” — AP

News of the automaker’s massive vehicle recalls over faulty gas pedals in the U.S. came just days after Japan Airlines, a once proud flag carrier, filed for bankruptcy, saddled with billions in debt.

Sony has lost its lead in consumer gadgets to the likes of Apple Inc. and has suffered its own quality mishaps. Honda, Japan’s No. 2 automaker, is recalling 646,000 cars worldwide because of a faulty window switch.

Taken together, Japan Inc.’s stellar reputation for quality has taken a hit — just as China is about to overtake it as the world’s No. 2 economy and rising South Korean companies compete ever more aggressively.

What went wrong with the economic giant that arose from the ashes of World War II?

The problems that confront Toyota, Sony and JAL differ, but experts say their struggles have some common themes: the perils of global expansion, a tendency to embrace the status quo, and smugness bred from success or a too-big-to-fail mentality.

“Arrogance and some complacency came into play, driven by the idea that their ranking as No. 1 producer of quality goods wasn’t at risk,” said Kirby Daley, a veteran Tokyo trader who is now chief strategist at Newedge Group, a financial services firm in Hong Kong.

The global economic crisis helped to expose weaknesses, he said. “There was nowhere to hide.”

Added to the mix for Toyota and Sony is intense competition from upstarts in South Korea, China and elsewhere in Asia.

“They can offer products as good as Japanese at much lower cost, even though quality of Japanese products is on the decline,” said Shinichi Ichikawa, chief strategist at investment bank Credit Suisse.

Some new Asian rivals, particularly in electronics, learned their techniques from Japanese operations set up around the region.

Cutting costs to stay competitive while meeting growing demand, Toyota, Sony and others compromised on quality control as they tried to reach ever-larger sales targets, analysts say.

Toyota adopted the practice of using the same part across a range of models — saving vast sums of money but exposing itself to the risk that even a small defect could cause global mayhem for the company.

It also faced difficulties ensuring quality as its global sales expanded rapidly, reaching 8.9 million vehicles in 2008, when it displaced General Motors as the world’s biggest automaker. Experts say its growth outpaced management’s ability to anticipate looming problems.

The result: recalls of more than 7 million vehicles in the U.S., Europe and China for problems with their accelerators and floor mats, and the suspension last week of U.S. sales and production of eight models including the Camry, America’s top-selling car.

It’s a “terrible blow” for Toyota because its identity is so closely linked to quality and the company seemed slow to recognize the problems, said Kenneth Grossberg, a marketing professor at Waseda University who has lived in Japan for 16 years.

“This is the company of zero defects,” he said. “How could such a major fault get past them? It violates their operating principle.”

As far back as March 2007, Toyota started getting reports of gas pedals being slow to rise after being stepped on. Engineers fixed the problem in the Tundra pickup early in 2008, but troubles persisted in other models, eventually leading Toyota to announce massive recalls for the accelerator and floor mats that could trap the gas pedal.

Grossberg said a common problem at Japanese companies is “group think” that makes it hard for an individual to raise a troublesome issue.

“It either falls flat and people ignore it, or it creates a problem for the individual who brings it up,” he said.

Sony started facing problems after it misjudged several critical market trends.

It was slow to predict the switch to LCD televisions and fell behind South Korea’s Samsung Electronics Co., which zoomed ahead to become a market leader.

Content with the success of the Walkman, the portable music player that became a global hit in the 1980s. Sony was slow to jump into digital players. It has been hammered by Apple’s iPod, as well as by cheaper gadgets and consumer electronics from other Asian competitors.

With Sony’s empire sprawling into finance, movies and other businesses, some analysts said the corporation was losing its focus. In 2006, it recalled nearly 10 million laptop batteries after some caught on fire.

The company is still losing money even as CEO Howard Stringer wins praise for taking it back to basics.

At Japan Airlines, problems had festered for decades but were repeatedly papered over because of Japan’s reluctance to let major companies go under.

It became the victim of its own ambitions when risky investments in foreign resorts and hotels went bad after Japan’s property and stock bubble burst in the early 1990s. Bloated pension and payroll costs, as well as a network of unprofitable but politically necessary domestic routes, led to government bailouts.

JAL had a good reputation for comfortable travel, but its lavish running costs had “generally been something of an industry joke,” said Peter Harbison of the Sydney-based Centre for Asia Pacific Aviation.

Quality, too, eventually proved problematic: A spate of safety lapses tarnished JAL’s image, and its rival, All Nippon Airways Co., benefited.

And while filing for bankruptcy with $25.6 billion in debt was an embarrassment, analysts expect JAL to slim down and emerge healthier.

Toyota, too, will bounce back, they say.

“Toyota expanded too rapidly, and that’s always a risk,” said Martin Schulz, an economist at Fujitsu Research Institute. “But they will get this quality problem under control.”

In Japan, reaction to Toyota news has been more muted because the recall doesn’t affect models in the domestic market. Japanese are proud of Toyota’s leading role on the roads, including its move into hybrid and other green vehicles.

So far, the automaker’s sterling reputation is holding up at home, partly because Japanese often assume that Japan-made products are better than those made abroad. Toyota’s Japanese models use a different parts supplier than CTS Corp., the American parts maker rushing to fix the faulty gas pedals.

Still, the blaze of bad publicity has struck at the idea of Japan as a technology powerhouse where companies can be world leaders despite the nation’s deeper problems of an aging population, mounting debt and anemic economic growth.

Toyota must take “urgent measures” to regain consumers’ confidence, the Yomiuri newspaper said in an editorial Sunday.

“For other Japanese automakers and manufacturers, it’s not somebody else’s problem. They should keep in mind that safety and quality make the foundation of public trust in the Japanese way of manufacturing.” — AP

Following are the key figures and measures in the fund’s revival plan. This includes information from the ETIC’s statement and a document provided by the government.

FINANCIAL AND OPERATIONAL POSITION

The ETIC said JAL companies are carrying about 780 billion yen ($8.6 billion) of interest-bearing debt, excessive relative to its earnings capacity. It said the carrier is operating too many routes and aircraft, and that management has been unable to take decisive action, resulting in excessive fixed costs.

FINANCIAL AID

The ETIC said it and the state-owned Development Bank of Japan would provide JAL with 600 billion yen in debtor-in-possession financing to ensure it can maintain operations. Following its decision to acquire JAL debt, it would inject 300 billion yen of capital into JAL.

The ETIC said JAL companies are expected to receive 730 billion yen worth of debt forgiveness.

JOB, ROUTE CUTS

JAL will cut its group workforce to 36,201 by fiscal year 2012 from 51,862 in fiscal year 2009.

The carrier will reduce the number of domestic routes to 119 from 136 and the number of international routes to 79 from 93.

FLEET STRATEGY

JAL will retire aging and less fuel-efficient aircraft and introduce smaller and more advanced planes.

It said it would retire all 37 of its Boeing 747-400 planes and all 16 of its McDonnell Douglas MD-90 aircraft. At the same time JAL will introduce 50 small and regional jets.

SHAREHOLDERS

The ETIC said it intends to implement measures to hold shareholders accountable, including a 100 percent reduction of capital. It said the final decision on that matter, however, would be made in a forthcoming revival plan.

The Tokyo Stock Exchange said it would delist JAL’s shares on February 20.

PROFIT, SALES TARGETS

JAL’s sales are expected to come to 1.36 trillion yen in the year to March 2013, a drop of 30 percent against the 1.95 trillion yen booked in the year ended March 2009.

Its operating profit is expected to recover to 115.7 billion yen in the year to March 2013 from an expected loss of 265 billion yen in the current business year to March 2010. — Reuters

The price hit 7 yen, just 8 US cents, a new record intraday low. A year ago it was 213 yen.

The selling has been unstoppable, pushing the airline towards the sixth biggest bankruptcy in Japanese history.

That this is being allowed to happen to the national flag carrier says a lot about the change the new government elected last year wants to bring to Japan.

The centre-left Democratic Party of Japan has pledged to spend less taxpayers’ money on propping up failing corporations, and more on social programmes to help ordinary people instead.

As a general principle I think shareholders should bear some responsibility Yukio Hatoyama, Japan’s Prime Minister

The conservative Liberal Democratic Party, which governed with just one break for more than 50 years before losing the election in August, bailed out JAL repeatedly.

Now the Prime Minister Yukio Hatoyama has said that “as a general principle I think shareholders should bear some responsibility”.

Asia’s biggest airline will not be entirely cut loose though, as old habits die hard.

Bankruptcy

The Enterprise Turnaround Initiative Corporation (ETIC), a state-backed body that has access to public funds, will be giving significant support through a restructuring.

That process is expected to start with JAL seeking protection in the courts from the holders of its estimated 1,400 billion yen ($15bn; £9.4bn) in liabilities – a bankruptcy filing.

The process, similar to Chapter 11 in the United States, allows a company to continue its operations and pursue a revival.

Kazuo Inamori is set to lead JAL through restructuring

Some of Japan’s biggest banks will be asked for debt waivers.

It is widely expected that the airline will be delisted from the Tokyo Stock Exchange, wiping out remaining shareholders.

This week the company’s pensioners agreed to cuts of around 30% in their payouts – good news for the airline as the black hole in the scheme represents a significant proportion of its liabilities.

Members of staff who have not yet retired had already said they would accept even bigger reductions.

Zen monk

It is Kazuo Inamori who is set to take on the daunting task of leading JAL through a restructuring.

His appointment is being seen as a break with the past management style at the airline, which has been criticized for being slow, overly bureaucratic and too certain of government support.

I’m a complete amateur in the transport industry but I would like to do my best in offering my cooperation Kazuo Inamori, JAL’s new chief executive

At 77, Mr Inamori is regarded as one of Japan’s great post-war entrepreneurs, who founded not one, but two, blue chip companies.

He made his first fortune with the electronics component maker Kyocera Corp and his second with KDDI, Japan’s number two mobile operator.

He is close to the governing Democratic Party of Japan, but he has no direct experience in aviation.

”I’m a complete amateur in the transport industry but I would like to do my best in offering my cooperation,’ he says.

JAL is Asia’s biggest airline

”If we steadily implement the rehabilitation plan that is being compiled by ETIC, I believe revival is possible.”

The serenity he doubtless enjoys as a Zen monk will probably help. He was ordained in 1997.

And middle managers at JAL will be thumbing through the 11 books he has written about management including Respect the Divine and Love People, and Elevate Your Mind and Expand Your Business.

Generously sprinkled with philosophy, they advocate creating small divisions within companies, each of which must be profitable.

Cutting routes

Japan’s government has pledged to keep JAL’s planes flying during the coming restructuring.

But the airline that emerges from the crisis could look very different.

It has already announced that it is cutting many international routes and it could lay-off up to 15,600 people – a third of its workforce.

For years Japanese governments spent huge sums on construction projects to try to keep the economy going, including many airports.

It is JAL which has served them.

One option reported to be under consideration is setting up a budget airline with only economy seats to try to make some of the unprofitable routes pay their way.

As investors fight to get out of JAL, global airlines are still circling, hoping to increase their access to the Asian market.

American Airlines and Delta Airlines are competing for a tie up.

But reports in Japan say that with bankruptcy looming both offers may be turned down, for now. — BBC News

But this time the national flag carrier is getting what has been described here as “tough love”, and that says a lot about Japan’s new government and its priorities.

The Democratic Party of Japan (DPJ), led by Prime Minister Yukio Hatoyama, came to power last September, ending more than half a century of conservative dominance.

It promised to stop lavishing taxpayers’ money on failing corporations, and instead direct the government’s efforts to helping ordinary people, with allowances for families with children and free high school education.

The government is determined to expand the welfare state even though Japan already has the largest debt in the developed world.

The Diet, or parliament, convened this week to discuss the budget, which includes proposals to borrow more than the government receives in taxes.

It is the first time that has happened since the end of World War II.

Shareholder burden

The government has blamed the previous administration for much of JAL’s problems, saying management was complacent because it was certain bailouts would come.

I though there was no way Japan Airlines would fail Akiko Saito, shareholder Can JAL be turned around?

Old habits die hard, of course, and Japan Airlines is not being completely cut loose.

The Enterprise Turnaround Initiative Corporation, a state-backed body with access to public funds is going to pump in billions of dollars.

JAL’s rival All Nippon Airways is not benefiting from the same largesse.

Banks will have to waive unsecured debt and JAL’s shares will be delisted from the Tokyo Stock Exchange by 20 February, wiping out remaining investors.

The prime minister has said shareholders would have to bear some responsibility.

The price had already fallen from more than 200 yen a year ago to an intra-day low of 3 yen this week.

That means the airline, Asia’s biggest by revenue, is now worth rather less than a single jumbo jet.

Lost symbol

The staff too will pay a heavy price.

A third of JAL’s workforce, more than 15,000 people, will be shed over the next three years.

Pensioners had already agreed to 30% cuts in their payouts.

Waiting for customers…

The government says that the airline’s planes will stay in the skies, tickets will still be honoured as will frequent flyer miles.

And it is providing payment guarantees to suppliers, although the long term future for some could be grim.

For decades the airline was a symbol of Japan’s economic success as it carried tourists all over the world.

It will emerge from the long process of restructuring smaller, leaner and the plan is, profitable.

Something like this has been on the cards for months, but the national flag carrier filing for bankruptcy protection is still a shock for some.

“I though there was no way Japan Airlines would fail,” said Akiko Saito, a 63-year-old shareholder who was checking in to a flight at Tokyo’s Haneda Airport when the company announced its plans.

“I was convinced it would recover so I still have my stocks.” — BBC News

The bankruptcy is part of a government bail-out that is likely to be announced on Tuesday, reports say.

The company, which lost about $1.5bn in the six months to September, is now worth just $150m – less than the price of a new jumbo jet.

The company’s stock reached a high of 366 yen a share back in 2003.

While the turnaround plan backed by the government will see the airline continue to fly, investors in the company are likely to lose most of their money.

Along with other major global airlines, JAL has been hit hard by falling passenger numbers during the downturn and is struggling with debts of more than 1tn yen. — BBC News

The former pilot flew for Japan Airlines, which is filing for bankruptcy on Tuesday, for 34 years but will see his monthly pension shrink by 40 per cent to Y140,000 ($1,546) as a result of its bankruptcy.

“It’s not about the money, it’s about dishonest management,” he says. “JAL was unprofitable but executives thought nothing of taking Y100m retirement bonuses.”

JAL’s wounds are indeed mostly self-inflicted. Like many Japanese groups it expanded recklessly in the 1980s, buying resorts, golf courses and shopping malls that plunged in value when the country’s real estate bubble popped the following decade.

Management has often been fractious: one chief executive quit in 2005 after a series of safety lapses damaged the company’s once-shining brand; another was forced out in a boardroom rebellion the following year.

Yet other elements of JAL’s story are familiar to airlines worldwide. A cluster of external shocks over the last decade — from September 11 to SARS, to soaring fuel prices and the global financial meltdown — have left it battered. Government handouts are believed to be the only reason it did not fail sooner.

“JAL has always had the protection of the state, so it could put off making hard decisions,” says Motoshige Itoh, an economics professor at the University of Tokyo. While big US carriers such as United Airlines, US Airways and Delta Airlines went through court-protected restructurings in the first half of the 2000s, it took the financial crisis and recession to finish off JAL.

Osuke Itazaki, a veteran airline analyst in Tokyo, says the restructuring plan being imposed on JAL by the Enterprise Turnaround Initiative Corporation, a state-backed corporate rehabilitation fund, should put JAL on a sound financial footing.

JAL is to cut 15,700 jobs, or a third of its workforce, sell dozens of non-core businesses and, through bankruptcy court, force its banks to write off much of its Y1,440bn in gross interest-bearing debt. Retirees have already accepted an average 30 per cent reduction in pension payouts, and current workers’ benefits will fall by half.

“The question,” Mr Itazaki says, “is whether things like management culture, strategic direction and quality will improve. Simply fixing JAL’s finances won’t solve those problems.” Either way, the airline is likely to slip below All Nippon Airways in revenue terms in the next several years.

The government recently named Kazuo Inamori, the 77-year-old founder of the Kyocera technology group, to oversee the turnaround effort as JAL’s next chief executive, replacing Haruka Nishimatsu, a career JAL insider.

One of Mr Inamori’s first decisions will be whether to retain JAL’s partnership with American Airlines and the OneWorld alliance or defect to Delta and its SkyTeam group, both of which are wooing the Japanese carrier. “This is a huge decision that could determine the future of JAL,” says one official involved in the restructuring effort.

The decision, expected in the next few weeks, will say a lot about the sort of airline JAL managers and the government expect to emerge from bankruptcy. Delta — whose approach is favoured by the transport ministry and many JAL executives — already has big hubs in Tokyo and nearby Seoul, unlike the more Atlantic-focused American. — CNN

JAL and Delta agreed the deal in Tokyo on Friday, the Yomiuri newspaper said, and plan to complete the switch by April 2011.

As JAL heads for bankruptcy, Delta and American Airlines have been courting it with rival offers of financial aid, eager to gain access to routes to fast-growing Asian markets and to get a stronger foothold in Japan.

Japan’s state-backed Enterprise Turnaround Initiative Corp of Japan (ETIC) has estimated that an alliance with Delta would give JAL an annual benefit of 17.2 billion yen ($189 million), three times more than expanded ties with American would offer.

Delta will continue to discuss with ETIC how much it will invest in JAL, the Yomiuri said. The two companies will apply to the U.S. government for anti-trust immunity by mid-February, the newspaper said. — Reuters

Asia’s largest airline by revenues, but whose market value has collapsed to below that of budget carrier Skymark Airlines, will file for bankruptcy protection as early as Tuesday, sources have told Reuters, as part of a restructuring being crafted by a state-backed turnaround fund.

Transport Minister Seiji Maehara said he would meet Prime Minister Yukio Hatoyama on Friday to set the “X-day,” a term widely used by media and bankers working on JAL’s restructuring to refer to when it will file for bankruptcy.

“We are doing everything possible to reduce anxiety and reassure that the X-day will not cause any confusion,” Maehara told reporters.

JAL, mired in losses and weighed down by about $16 billion in debt, applied in October to the Enterprise Turnaround Initiative Corp of Japan (ETIC), a fund that can draw on government-backed funding to bail out ailing firms.

The ETIC is expected to make an official decision next week to support the carrier with public money after it files for what could rank as Japan’s sixth-largest bankruptcy.

JAL announced on Friday it had procured 145 billion yen ($1.6 billion) in funds remaining from a 200 billion yen credit line provided by the state-owned Development Bank of Japan, indicating that it was building up emergency cash.

“We are preparing so we can make the necessary outlays when needed,” JAL spokesman Satoru Tanaka said.

The Nikkei reported on Friday that Japan Airlines International, which handles domestic and overseas flights, and JAL Capital, which raises operational funds, would also file for bankruptcy and be part of the state-led bailout.

JAL declined to comment on the report.

“We expect at least the group’s three core companies – JAL, JAL International and JAL Capital – to file for bankruptcy protection under the government-led rehabilitation scheme,” said Minoru Nakano, an official at bankruptcy research firm Teikoku Databank.

“It’s also possible that some other restructuring measures are announced for other smaller units at the same time.”

Shares of JAL were unchanged at 8 yen, giving it a market value of about $240 million. The stock has lost about $1.8 billion this week amid growing expectations it would file for bankruptcy and be delisted from the Tokyo exchange. — Reuters

Kazuo Inamori, honorary chairman of electronics parts maker Kyocera and critic of many modern CEOs as well as capitalism’s excesses (think an older Michael Moore at Kyoto’s Ginkakuji), says he will take the job for no salary, working only three to four days a week.

Long hours and zen resolve may be needed, though, as JAL shares slipped to 7 yen in value Wednesday, making its market capitalisation at about $200 million less than a single Boeing 747-8 aircraft.

Analysts say Inamori, who has launched a leadership school as well as his own foundation, may be the new government’s attempt to win a public buy-in that a principled outsider and his “Kyocera philosophy” of “doing good and doing well” can succeed where a slew of JAL managers have failed. — Reuters