Japan Airlines Corporation and Consolidated Subsidiaries
Years Ended March 31, 2003 and 2004

Operating Environment and Financial Strategy

Signs of improvement began to emerge gradually in the Japanese economy during the year under review, highlighted by a strong recovery in equity prices and an increase in the number of companies posting record-high profits. Nevertheless, the recovery has been a patchy one, since consumer spending and housing investment remained flat, and the employment situation continued to be difficult.

In the aviation industry, a very severe operating environment prevailed. Key adverse factors included the succession of serious events with international consequences, such as the military action in Iraq and the outbreaks of SARS and avian influenza, as well as the steep increase in the price of aviation fuel.

To counter these difficult business conditions, in domestic passenger operations JAL implemented vigorous sales promotion measures and enhanced competitiveness through the steady implementation of its integration plan, including the reorganization of its route network. As a result, unit prices improved and a substantial increase in revenues was achieved. In international passenger operations, however, the impact on passenger psychology of the external factors referred to above was greater than anticipated. This inevitably resulted in a significant slump in demand and a consequent decline in revenue.

In response to these increasingly difficult operating circumstances, the JAL Group aims to maximize the soundness of its financial condition. Its yardsticks for achieving that are to meet the targets of achieving a return on equity (ROE) of least 10% on a consolidated basis and of reducing the payback period for interest-bearing debt from operating cash flows to within 10 years. For the year under review, we recorded a ratio of net loss to shareholders’ equity, and the payback period for interest-bearing debt was 22 years, but the Group plan is to attain its targets from fiscal 2004 onwards by cutting costs through business integration and measures to boost revenues.

JAL Fleet (Consolidated)
March 31, 2004

Employee Statistics for Japan Airlines and Consolidated Subsidiaries
March 31, 2004

Note: These figures represent employees in the actual workforce.