Looking for a good parachute case

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Looking for a good parachute case

The revolving-door appointment season is at its peak. Former bureaucrats and campaign aides are lining up to get into state corporations and “privatized companies” where the government still wields enormous influence. Career-building and reputable positions are not the only rewards the hopefuls seek. The most fiercely sought after are the big name corporations like KT and financial holding company KB that are famous for their generous salaries and perks for chief executives. Slander campaigns against rivals are also fierce. The senior presidential secretary on economic affairs got himself in hot water for his comment that there are some good and bad cases in revolving-door appointments. But he is not entirely wrong. Japan Airlines is a good example.

Kazuo Inamori, chairman emeritus of Japan Airlines, has done exactly what he pledged to do three years ago: that he would leave the company once it flies high again. The veteran entrepreneur who founded two successful companies, including the country’s second-largest telecommunications carrier, and is among the post-war generation businessmen that built the country’s economy, was sought out by the government to help rescue the flagship carrier in 2010 when it had just filed for bankruptcy protection.

Investors, company employees and the industry had been dumbfounded by the choice of the new chief executive with no experience in the aviation industry. Japan Airlines, a symbol of Japan’s economic pride, became one of the biggest corporate failures in aviation history, sitting on a debt of more than 1 trillion won ($880.1 million) and demanding a multibillion-dollar public fund bailout when Inamori stepped up to the helm at the age of 80.

The airline company, which was owned by the government for more than three decades until its privatization in 1987, was one of the first destination senior government officials headed to after their retirement. As a result, management was in a mess in a rigid bureaucratic culture, sending the company to the point of delisting from the Tokyo Stock Exchange. Inamori - personally pleaded to by the prime minister to rescue the company - was the latest to come down via a golden parachute.

Inamori, an ordained Buddhist priest, was gentle and modest at first. But once he learned of the dire situation the company was facing, he determined to use the sword he was given.

He laid off over 10,000 employees and closed down a third of the company’s workplaces. He sold off 95 Jumbo Jets, getting rid of practically everything worth selling in the company. Through the radical cost-cutting efforts and emergency moves, the company generated one of the largest profits in aviation industry during his second year, in a miraculous turnaround. Three years later, the company is recording solid profits and is relisted on the Tokyo Stock Exchange as equity worth 10 trillion won. It is no wonder he has earned a reputation as a living corporate management legend in Japan.

But there are other secret ingredients behind Japan Airlines’ remarkable turnaround. According to an official at a Japanese branch of the regional rival Korean Air, there are two major reasons. The first is the elimination of 45 money-losing local routes. Air routes are heavily lobbied by lawmakers of the constituencies and none of the previous Japan Airlines executives dared to touch them. But Inamori shut 45 down in one day and none of the lawmakers could say a whole lot. The legislators dared not challenge Inamori in his crusade to save the flagship carrier.

The second major factor lies with the carrier’s labor union, which was one of the toughest labor unions in Japan. Eight union groups existed under a multilayered labor system, enjoying all kinds of benefits and wielding enormous power over management. Pilots received fixed high-paying salaries regardless of their flight hours, and employees took fat retirement checks and pension packages.

The company accumulated debt worth 10 trillion won to pay severance and compensation packages to retired employees at an amount more than 10 times what Korean Air sets aside. The company was headed in the same path that led to the bankruptcy of General Motors. Inamori cut off retirement pension by as much as 30 percent. He even got rid of a cleaning service at the company and told flight attendants to wash their uniforms at home. Surprisingly, the once-mighty unionists of Japan Airlines followed the orders.

However, it did not come easy as he set an example himself. In contrast to Korean parachute cases that chase fat salaries and perks, he received no pay while working for the company. After having stated at the beginning that he would visit the Tokyo headquarters only twice per week, he flew the 500-kilometer distance from his home in Kyoto to Tokyo everyday despite his age. On his last day, he told employees, “The road opens when you challenge the essence of problems directly.”

Our state companies are sinking in a sea of debt. Our labor unions are untouchable. With all the parachute landings, why can’t we have an Inamori? We can only hope to see a case where the new incumbent will stand up to political pressures and unions to turn around a company. We hope there is a name or two that fits the description among the candidate list at the presidential office.

*The author is an editorial writer of the JoongAng Ilbo.

by Lee Chul-ho
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