Japan Airlines asked retirees and employees on Monday to accept an average 40 percent cut to their pension payouts and warned the struggling airline could face bankruptcy if an agreement could not be reached.
JAL President Haruka Nishimatsu had made a plea in May to the company's pension fund for payments to be reduced by more than half, aiming to slice into a pension shortfall estimated at JPY330 billion yen (USD$3.7 billion) as of March.
But pensioners have strongly opposed the cuts and can easily block them under current laws, which require the company to secure the approval of two-thirds of retirees and employees to make changes to benefit payments.
Coming up with a solution to the shortfall is seen as a prerequisite to qualifying for the support of a state-backed turnaround fund, which is now debating whether to bail out the airline with public funds.
Nishimatsu told a gathering of unions and retirees on Monday that he sought a cut of slightly more than 30 percent from retirees and a reduction of more than 50 percent from employees, and wanted to reach a formal agreement by the end of January.
"If we can't, the risks to our survival will increase, including the possibility of a court-led reorganisation," Nishimatsu said, referring to the risk of a court-led restructuring similar to Chapter 11 bankruptcy proceedings.
To cut into its pension obligations, JAL is asking to change the annual interest rate on pension reserves from the current 4.5 percent to a variable rate tied to benchmark Japanese government bonds, now around 1.3 percent.
The cuts will impact 17,000 current employees and some 9,000 retirees.
If JAL and its employees and retirees can't come to an agreement, the government has said it would consider crafting legislation to forcibly implement cuts.
But that could prove tricky as some legal experts say such legislation could breach constitutional protection of property rights and some pensioners have threatened to sue.
A 59-year old male retiree said that he was torn over whether to agree to JAL's new proposal to help his former employer survive or fight to protect the pension he was promised.
"I feel an attachment to the company, but on the other hand I have my own life. I have been banking on that corporate pension to make ends meet."