Japan Airlines Plans to Spend $6 Billion on New Aircraft

16 Feb

Japan Airlines Co. outlined a five-year plan that includes spending $6 billion on new aircraft as the carrier emerges from two years of bankruptcy protection.

[[posterous-content:pid___2]]JAL has been turning its business around more quickly than expected by withdrawing from unprofitable routes, modernizing its fleet and cutting operating expenses. The airline has reduced its work force by a third. The strategy shows how the airline is embarking on an offensive to increase profit and growth amid intensifying competition.

The plan’s unveiling Wednesday came after the appointment last month of a new president. The carrier expects to relist its shares later this year.

“The company must move into stable cruise flight as early as possible,” President Yoshiharu Ueki said at a news conference Wednesday.

The company’s projected operating profit of ¥180 billion ($2.29 billion) for this fiscal year is now more than double its original target.

JAL also is looking to raise more than $6.5 billion in a relisting that could come as early as September, depending on market conditions, according to a person familiar with the matter. The company’s shares were delisted from the Tokyo Stock Exchange in February 2010.

[[posterous-content:pid___3]]But it won’t be easy for the airline to attract investors, given an uncertain economic outlook in the euro zone and heightened competition with budget carriers in Asia.

To overcome such challenges, JAL said it plans to invest ¥478 billion in new planes and parts over the next five years, aiming to modernize its fleet to reduce fuel costs.

The spending plan centers on Boeing’s 787 Dreamliner jet, which the manufacturer says is roughly 20% more fuel efficient than similar-size models. As JAL takes older planes out of service, it plans to replace them with the more fuel-efficient 787 and 737 models.

The new planes will be used for flights to the U.S., Europe and Southeast Asia, helping lift the company’s capacity on international and domestic flights 13% over five years. JAL’s capacity has decreased an estimated 31% over the past three years.

The airline said it will place an additional order for 10 Dreamliners, bringing the number of JAL’s firm orders for the next-generation aircraft to 45.

JAL’s total fleet will rise to 222 airplanes in March 2017, up from 212 planes on March 31.

With the new 787 Dreamliners, JAL said it will start services from Tokyo’s Narita airport to San Diego and Helsinki by the fiscal year ending March 2013.

The airline hopes the jets will help save ¥50 billion in operating costs over five years.

For fiscal 2014, JAL targets a net profit of ¥115 billion with revenue of ¥1.24 trillion. That compares with a projected profit of ¥160 billion and revenue of ¥1.19 trillion for the current fiscal year. The forecasts reflect the uncertain global economic outlook. JAL also assumes that the yen will weaken, which would raise fuel costs.

[[posterous-content:pid___1]]The collapse of the former national flag carrier meant JAL slipped to second place in terms of passenger numbers in Japan. But the airline’s latest profit outlook exceeded that of the country’s largest carrier, All Nippon Airways Co., which forecast profit of ¥20 billion on revenue of ¥1.4 trillion for the current fiscal year.

Corrections & Amplifications
Yoshiharu Ueki is president of Japan Airlines. An earlier version of this article incorrectly said he was chairman. Also, the company’s projected operating profit is equivalent to $2.3 billion. An earlier version incorrectly said $1 billion.

 

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http://online.wsj.com/article/SB10001424052970204059804577224711925087298.html

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