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Kaneko, Isao 1938–

Isao Kaneko
1938

Chairman and chief executive officer, Japan Airlines International Company

Nationality: Japanese.

Born: March 1, 1938, in Japan.

Education: Tokyo University, 1960.

Career: Japan Airlines Company, 19581998, industrial relations and human resources; 19982002, president; Japan Airlines Systems Company, 20022004, CEO; Japan Airlines International Company, 2004, chairman and CEO.

Address: Japan Airlines International Company, 4-11 Higashi Shinagawa Shinagawa-ku Tokyo 140 Japan; http://www.jal.jp.

Japan Airlines Company (JAL) began as a government airline created in part by the United States at the end of its postWorld War II occupation of Japan. JAL became a completely private company in 1987 and struggled, without profit, through its first decade of existence. Isao Kaneko took over the leadership of what was nevertheless Japan's number-one airline under bleak circumstances in 1998: the previous president had resigned in shame after seven years of having failed to prevent record losses despite restructuring efforts. Kaneko not only survived poor financial reports, gangster showdowns, and further restructuring but made the airline profitable and composed a strategy for seeing the company through global security crises. In 2003 sales topped $17 billiona 43.7 percent improvement over the post-9/11 downturn. The number of employees surpassed 54,000 as a result of JAL's 2002 merger with Japan Air Systems. After April 1, 2004, the merged airlineJapan Airlines International Company (JAIL)began operating under the JAL brand name as the sixth-largest airline in the world and the largest airline in Asia, with a $25.8 billion enterprise value.

STYLE

Like most Japanese executives Isao Kaneko was employed by the same company for his entire working career. However,

Kaneko was unusual for a Japanese executive in that, as de scribed by Neil Martin in a Barron's article, he was said to be more like an American star executive with "his quick decision making and initiative" (January 5, 2004). To observers this aspect of his personality led to frequent comparisons to sports coaches, as he took employees under his management aside to explain corporate strategy, cheer them on, and demand that they excel. Kaneko was in fact a fan of basketball; on his desk lay a pair of shoes that belonged to Shaquille O'Neal, the Los Angeles Lakers center who epitomized Kaneko's approach: do what it takes to win.

In 1967 Kaneko created a basketball team and often later said that he would rather be coaching than running an airline. Kaneko's team, the JAIL Rabbits, ranked second in the Japanese corporate league in 2004. Though unable to coach the Rabbits, Kaneko was named their honorary president. Off the basketball court, Kaneko had succeeded in coaching JAL to health, where a less determined executive would never have taken the floorespecially in the wake of the 1997 Asian financial crisis and the Japanese economic depression.

RESTRUCTURING

Upon his ascent to the position of CEO of Japan Airlines Company in 1998, Kaneko began a restructuring program that differed from his predecessor's in that it was thorough and genuine. The company's board was cut from 28 to 11 members, the sales of costly assets reduced debt from $12 billion to nearly $9 billion, and 1,300 employees were trimmed from the workforce. Kaneko made better use of subsidiary charters and domestic companies as a prelude to general flight-route recon-figurations.

Cutting labor costs became a major component of Kaneko's restructuring effort. Realizing that pilots at JAL made 50 percent more than their U.S. counterparts and significantly more than their domestic counterparts as well, Kaneko sought to increase corporate profitability at the expense of pilot pay. The use of subsidiaries lowered labor costs; by closing down maintenance facilities in Japan and contracting with Chinese firms, Japanese workers lost jobs but the airline saved money. The results were immediate, as JAL posted its first profit ever in March 1999 and share prices rose 11.3 percent. JAL was soon welcomed into the Oneworld alliance with British Airways, thus expanding its customer base. From such a position of strength and with happy shareholders, Kaneko turned to face obstacles blocking further success.

SOKAIYA

Japanese businesses had a unique problem preventing them from completely adopting the standards for shareholder rights that were common in the U.S. and European business environments. In Japan mobsters historically purchased enough shares to give them access to company meetings, where they would cause disruptions. Yakuza mobsters attended meetings simply to insult corporate chairmen or board members while preventing any legitimate business from taking place. To avoid this, company boards would pay these sokaiya or extortionistsnot to attend meetings. Another result of such unpleasantness was that legitimate shareholders were prevented from openly meeting with executives who were afraid of the extortionists.

Sokaiya victimized JAL once it became a private corporation. An arrangement was made to allow JAL to hold some meetings: for eight years the company rented plants from the sokaiya as a payoff. Through that ostensible rent JAL paid the mobsters a total of ¥80 million, or roughly £420,000, as reported by Jonathan Watts of the Guardian (June 30, 1999). Though Kaneko and other leading JAL officials denied knowledge of the arrangement, Kaneko admitted that such unfortunate occurrences were common in Japan in spite of their having been made illegal by a recent Commercial Code.

Kaneko proved able to turn the scandalous revelations to JAL's advantage. His eventual acknowledgment of the problem led to cooperation with the authorities in an investigation of JAL executives involved in the racketeering. Kaneko halved the salaries of JAL's vice presidentsas well as his ownfor three months as collective punishment, winning praise from the Japanese public. Kaneko also cooperated with two thousand other businesses in a massive sting operation conducted by Japanese authorities. By conducting shareholder meetings simultaneously, the firms were able to reduce the power of the sokaiya, who could not be present at all meetings. Arrests for shareholder extortion increased, and the prominence of sokaiya waned, though they did not disappear.

JAPAN AIR SYSTEM

Having initiated the defeat of the sokaiya, Kaneko returned to his restructuring efforts. He proposed to enlarge JAL's 8.25 percent stake in Japan Air Systems (JAS) to form a complete merger. JAS, a domestic carrier and Japan's third-largest airline, would augment JAL's international strength, allow a streamlining of air service, encourage further reductions in labor costs, and allow JAL to better compete regionally with All Nippon Airways (ANA), Japan's second-largest airline. In 2002 the two companies formed a joint holding company while undergoing integration.

Continuing his restructuring game plan, Kaneko capped pilot salaries, increased the ratio of foreign workers, and outsourced plane maintenance to China for both JAS and JAL. These moves reduced labor costs but also resulted in a strike among pilots. Kaneko faced the striking pilots by creating a separation between negotiators and workers; with the workers isolated Kaneko arranged a labor deal that helped him move toward his goal of bringing Japanese pilot salaries in line with those in the United States and Europe. The power of labor to safeguard worker interests subsequently weakened. JAL also hired Thai flight attendants at salaries lower than those of Japanese flight attendants.

By 2004 Japan Airlines International Company (JAIL), the official name of the merged airlines, was operating under the JAL brand. Sales offices, maintenance, and staff had been successfully integrated into a single company. Duplicate personnel positions as well as routes and underused planes were eliminated. Flight traffic was reorganized into a trunk-and-regional pattern: former JAS flights would feed domestic fliers into JAL international flights. Such a system was more customer friendly as well as cost effective, as seat-occupancy rates were maximized. The increased operational efficiency resulting from the merger would allow JAIL greater flexibility when faced with plummets in airline traffic following global crises. By altering labor contracts and plane-maintenance methods, JAIL sped up its ability to lay off workers, ground flights, and contract operations at such times. Analysts mostly approved of the merger's progress as well as Kaneko's profit forecasts.

SARS, TERRORISM, AND FLIGHT SECURITY

As a historically troublesome industry surviving on periodic government bailouts and subsidies, the aviation sector was threatened with outright destruction by the global security issues brought to the forefront on September 11, 2001. In the United States all flights were grounded for several days after the terrorist attacks; globally tourists cancelled trips, while businesses increased reliance on phone and video conferencing. Japanese touristsespecially along the crucial Japan-Hawaii routestopped flying for a cultural reason: the Japanese thought it impolite to travel anywhere, especially for a holiday, during a crisis. The Bali bombing and outbreaks of SARS followed; fears of encountering terrorism and contracting the deadly flu virus decimated travel from Japan to Southeast Asia and China.

Kaneko adopted a cautious, sensitive approach to the plunge in air travel. To cover losses, he arranged for an emergency loan from the Development Bank of Japan. JAL refused to allow linked advertisement by tourist businesses during the crises, fearing the public would view JAL as callous or as trying to take advantage of another nation's trouble. A year later, however, JAL reversed its stance and began heavy advertising campaigns; Kaneko encouraged Japanese runners to enter the Honolulu marathon, helping bring the number of race participants back to more than 30,000, a level not seen since 1998. Of those runners, more than 57 percent were Japanese.

One of JAL's most successful promotion efforts involved the use of Hideki Matsui, the baseball star and national hero who played for the New York Yankees when they lost the World Series to the Florida Marlins in 2003. Matsui's face was painted on JAL planes, and a drawing placed 250 fans on a two-hour flight with the hero. Such advertising stunts helped boost ticket sales and return tour groups to the airways, though concerns remained with respect to the war on terror and rising oil prices.

See also entry on Japan Airlines Company, Ltd. in International Directory of Company Histories.

sources for further information

Fuji, Chisako, "Marketing & Media: Hawaii Governor Urges the Return of Japan Tourists," Wall Street Journal, October 10, 2001.

Harney, Alexandra, "JAL to Cut 1,300 Jobs and Slash Board Size," Financial Times, March 17, 1999, p. 20.

Japan Airlines, A More Competitive JAL Group, Tokyo: Japan Airlines, 1999. "Japanese Form World's Sixth-Largest Airline," BizAsia.com, October 3, 2002, http://www.bizasia.com/companies_/fyqrj/japanese_form_worlds_sixth.htm.

Lopez, Joe, "Jobs and Safety Sacrificed in Global Airline Industry," http://www.wsws.org/news/1998/nov1998/airn13.shtml.

Martin, Neil A., "Japan Airlines System: Clearer Skies Ahead," Barron's, January 5, 2004, pp. 2223.

Shirouzu, Norihiko, "Japan Air to Write Off $1.2 Billion in Losses: Top Officers to Step Down; Investments in Resorts, Competition Are Cited," Wall Street Journal, March 18, 1998.

Watts, Jonathan, "Japan Inc. Fights Off Racketeers," Guardian, June 30, 1999.

Yamanouchi, Kelly, "Skyrocketing Marathon Entries to Boost Tourism," HonoluluAdvertiser.com, http://the.honoluluadvertiser.com/article/2002/Nov/14/bz/bz01a.html.

Zaun, Todd, and Zach Coleman, "Japan Airlines to Buy JAS, Nation's No. 3, as Travel Drops," Wall Street Journal, November 13, 2001.

Jeremy W. Hubbell

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