JAL Part of the Bankruptcy Game In The Airline Industry

Say Aloha!

Three airline companies filed bankruptcy, and now a fourth, JAL.

Owning a business that manufactures parts for airplanes, my husband and I are no strangers to the "bankruptcy" game that is often played by the airline industry. Two years ago three major companies,  ATA and Aloha Airlines, which greatly effected the travel to and from Hawaii, and Champion Air bit the dust, leaving their creditors literally "up in the air". As recent as January 2010, Japan Airlines known as JAL, Asia's largest carrier by revenue has announced it's plans to file bankruptcy too.

What does all this talk of bankruptcy really mean?

Well, in a nutshell it means that the "Big Guy" gets to stick it to the "Little Guy" once again, and the "friendly skies" really are not all that friendly.

The smaller companies that are the suppliers and manufactures of the airplanes themselves really are the ones to lose in this game of "legal" irresponsibility, because it relieves the airlines from all responsibility to pay for their incurred debt.

The employees of the airlines themselves also are affected as they often lose years of retirement and profit sharing incentives.

The customer loses as they are oft times left stranded, who knows where, and out of luck on a ticket refund.

Who wins? The Airline companies themselves, and I will tell you how.

The airlines have their reasons for being grounded.

The three companies ATA, Aloha, and Champion blamed the reason for their demise on the rising jet fuel prices and the stiff competition they received from low cost carriers. ATAalso blamed a lost FedEx charter contract as a contributing factor grounding them. The sagging economy, and tight credit markets, were also key contributors influencing them to make the decision to close their doors.

Ryouta Himeno, transport analyst at Mitsubishi UFJ Securities explained the reason for JAL to be grounded as, “There were big accidents in the global airline market, like September 11 terror, SARS, new flu and travel safety,” Himeno continued adding that these factors and the “Lehman shock” were “big damage for JAL.”

Over 10,000 jobs, according to local reports, are expected to be cut from the JAL workforce.

ATA, not a stranger to bankruptcy.

In 2006, ATA just barely had emerged from the protection of a previous bankruptcy claim and yet, just two years later, announced they were again throwing in the towel. That bankruptcy claim  put 2,200 employees out of a job.

ATA was a subsidiary of the larger aircraft industry organization, Global Aero Logistics, who in 2007 made a merger acquiring World Air Holdings. Global Aero Logistics was the umbrella company for three independent airlines, ATA Airlines, World Airways, and North American Airlines. One is gone, two more to go? Not on your life!

Aloha Airlines have been in bankruptcy before too.

The Honolulu based Aloha Airlines had been in operation since 1946 and was the second largest carrier from Hawaii.

"We simply ran out of time to find a qualified buyer or secure continued financing for our passenger business," said Aloha President David Banmiller. "We had no choice but to take this action."

Aloha Airlines operated a fleet of 26 Boeing 737s, serving five airports in Hawaii and six destinations in the continental United States. The closure of this company  caused 3,500 employees to be out of a job. But financial insecurity is not new to Aloha Airlines; they have been in Chapter 11 before, only being cleared in February of 2006. I guess it is just one more round in the game!

Hawaiian in bankruptcy before too!

Hawaiian Airlines  swooped down from the sky to take up the slack of the displaced Aloha ticket holders, offering open seats on its regularly scheduled flights and even making available emergency flights for stranded passengers.

"We are maximizing our aircraft and resources to keep inter-island travel and cargo moving. Hawaiian can accommodate all of Aloha's traffic. As Hawaii's flagside carrier, we recognize our special responsibility to serve the people of these islands," Dunkerley said in the wake of Aloha's bankruptcy.

Interestingly enough Hawaiian was also the recipient of bankruptcy protection when they filed for chapter 11 in 2003, only emerging themselves in June 2005.

go! Airlines is the new guy on the block.

Before you think of Hawaiian as the "saints of the sky", it is interesting to note that a corporation called Mesa Air Group launched a new low fare inter-island service called go! in June of 2006, adding to the competition in flight services and contributing to the demise of Aloha. They, like Hawaiian, have upped their services increasing their daily flights to 94 from the 54 flights they were making, in the wake of Aloha's shutdown.

Even with this increase in business Mesa Air Group is claiming a fiscal loss, I wonder if bankruptcy is in their future too?

Stock instead of cash!

In the length of time we have owned our manufacturing business, Continental Airlines has pulled the bankruptcy stunt three times. In fact they were so kind as to issue us worthless stock in lieu of payment for the goods they received. That paper lined the trash cans beautifully.

It is quite possible that the wave of maintenance problems that are being seen in the industry may have forced the hand of ATA and Aloha too.

Southwest was slapped with a maintenance order shutting down all of their planes until they have been inspected. This was costly to say the least. American had to follow suit, pulling all of their MD80's until further inspection and maintenance standards were complied with. Aloha Airlines purchased only "used" planes, so they were probably next on the hit list for maintenance requirement standards and just couldn't take the cost expenditure along with its other debts that it had incurred. So what better way to get out from underneath the pressure? File bankruptcy... the cure all.

Bankruptcy more common than not in the airline industry.

Well, it looks like they are literally "dropping like flies"! After only one year in the airline industry, Skybus filed bankruptcy in April 2008. Right on their heels went Frontier Airlines who announced their bankruptcy course of action in that same month.  They both blamed the rising fuel prices as leaving them no other course of action.

JAL is attempting reorganization.

JAL on the other hand is filing for a court led reorganization in one last ditch effort before they close their doors.  Upon resignation JAL's president and CEO Haruka Nishimatsu expressed the sentiment, “The government, banks, and the Japanese people have given JAL a last chance to rebuild the company. I apologize deeply and I wish for the people to support in rebuilding JAL.”

I guess the only answer for a manufacturer of airline parts in this airline industry game of bankruptcy is CASH!

What is the answer for the little guy in this game of "Russian Roulette"? COD

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Comments 12 comments

pawswright 8 years ago

Very informative hub, Doghouse. It is very interesting to hear your perspective from the "inside out". This affects my family because of close relatives who live on the lovely islands of Hawaii. We've noticed the outrageous prices online and can't believe it!!! At least you've helped me understand the chain reaction that has occurred in all this mess. Again, great hub! I'm a fan!


monitor profile image

monitor 8 years ago from The world.

I am not one to stick my head in the sand but there are some things I would rather not know. I mean I know I have to but I would rather not. THis is terrible and is going to spoil my day. Outrageous.

Your fan.

Mon.


MikeJ profile image

MikeJ 8 years ago from Utah

Thank you for your informative insight on this subject. Sometimes I wonder how those "big folks" at the top of all of their wheelings and dealings sleep at night, knowing they are impacting thousands of people. I mean, they know what they are doing when they go into this game, right? It's a sad affair. Just another sign of the times!!


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Pawswright, I am right there with you. I have an invested interest in Hawaii also. Tickets I am afraid are going to go sky high! My son is at school there, and thank goodness, we haven't purchased his ticket to come home yet... he usually flies ATA. Thanks for your vote of support.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Monitor,

Sorry to spoil your day, it has sort of added a bit of a damper to mine too. Fortunately because we have been burned by ATA before, we only deal COD with them, so not a loss there. Aloha on the other hand owes us, but not a big amount...thank goodness.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Good Morning Mike,

You are right, they know exactly what they are doing. It is just a legal way to get out of their responsibilities. I feel you are right on the money when you say it is another sign of the times. Thanks for the visit!


cgull8m profile image

cgull8m 8 years ago from North Carolina

The big guys can get away with the mess but the little guys if they do the same have to endure trouble for a long time. The CEO and the officers will go to another company with a clean record. Only the customers are affected sadly.


robie2 profile image

robie2 8 years ago from Central New Jersey

Why is it so much easier for corporations to declare bankruptcy than for individuals....like say homeowners who were sold fraudulent ARM's?? Something is very upside down in this country of ours. Once again the boys in the back room have made a deal and we are the losers. Thanks for another great hub.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

cgull8m,

Yes, I am afraid that your observation is correct. It is a very poor system indeed.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

robie2,

Thanks for your comments.  I think bankruptcy for these big airline companies is just a way for them to not pay for their debts. They then just shuffle things around a bit and it is back to business as usual.  It really does stink!


Bocadike 8 years ago

Very succinct insight into the situation!


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Bocadike,

Thank you for reading and for your comments.

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