Japan Airlines : Corporate Governance Report(Apr13,2022)

Corporate Governance Report

Last Update: APR.13.2022

Japan Airlines Co., Ltd.

Securities code: 9201http://www.jal.com/

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views

We maintain an awareness that our corporate group is a member of society at large with the duty to fulfill our corporate social responsibility and contribute to society as we develop our business, in addition to fulfilling our financial responsibility of earning adequate profits by providing high quality products through fair competition while maintaining flight safety, which is our core business, and providing unparalleled service to our customers.

Taking this into account, we have established JAL Philosophy in accordance with the JAL Group Corporate Policy, "The JAL Group will pursue the material and intellectual growth of all our employees, deliver unparalleled service to our customers, and increase corporate value and contribute to the betterment of society." We will strive to increase corporate value and achieve accountability by establishing a corporate governance system that results in high management transparency and strong management monitoring, while at the same time engaging in speedy and appropriate management decision making.

The Board of Directors has established corporate governance by adopting the Fundamental Policies of Corporate Governance as a key set of rules subsequent to the Companies Act, relevant laws and regulations and the Articles of Incorporation, and reviews it at least once a year.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

The JAL Group have implemented all principles of the Corporate Governance Code revised on June 11, 2021 and have established a corporate governance system. We will continuously work to increase corporate value.

[Disclosure Based on the Principles of the Corporate Governance Code]

[Principle 1.3 (Basic Strategy for Capital Policy)]

(Fundamental capital strategy policy)

In order to plan for future corporate growth and adapt to changes in the management environment in order to be prepared for business risks unique to the air transport business, the JAL Group strives to secure net assets required for capital expenditures and to keep the equity ratio stable.

Furthermore, it has established a system to secure diverse and flexible means of procuring capital and strives to maintain a good credit rating to realize this.

We are also aware of cost of equity and to achieve a level of capital efficiency that exceeds the costs, establishes a management plan and financial targets and discloses and explains them including concrete measures to achieve its targets.

(Policy on shareholder return)

We regard shareholder returns as one of our most important management matters. Our fundamental policy is to actively implement shareholder returns through continuous and stable dividends and flexible share repurchases, while securing internal reserves for making investments for corporate growth in the future and changing business environments and to build a strong financial structure.

We will decide the dividend per share level, considering its continuity, stability and predictability with reference to a payout ratio of approximately 35%. In addition, we will proactively and flexibly consider share repurchases, considering its financial position and other factors. As a result, we seek to achieve a total payout ratio, which combines the total dividends paid out and the total amounts of the share repurchases, of an approximately 35% to 50% range through appropriately sharing periodic profits and allocating capitals among all of its stakeholders.

At the same time, we continuously strive to improve capital efficiency through monitoring a total return on equity ratio, which is calculated by dividing the sum of total dividends paid out and share repurchases by shareholders' equity. We make its efforts to maintain this ratio at approximately 3% or above.

The Ordinary General Meeting of Shareholders approves the year-end dividend, but the Articles of Incorporation state that the Company may pay an interim dividend after approval by the Board of Directors, based on a record date of September 30.

[Principle 1.4 (Cross-Shareholdings)]

(Principle on holding shares of listed companies)

Building cooperative and collaborate relationships over a broad range of fields such as sales, procurement, and service provision, and maintaining good relationships with local communities are indispensable in operating the air transport business. It is necessary to strengthen relationships with partners in various areas to survive in global competition and achieve growth. To achieve these goals, we may buy and hold shares in other companies. In these cases, we will carefully select and hold shares of companies that will contribute to enhancing our corporate value, on the precondition of maintaining trusting relationships with our stakeholders.

The fundamental policy of holding shares in listed companies is that we will hold the minimum number shares to meet the above goals. We will always verify the degree of contribution to corporate value enhancement of holding shares. Specifically, we compare profit on transactions attributable to dividends received and shares held with target capital cost, conduct quantitative study and take into consideration qualitative factors. We also pay attention to market value.

If we judge that it is meaningless to hold certain shares in terms of enhancing our corporate value, we will consider selling them, while taking into account the impact on the market and other business matters, etc. We confirmed the policy concerning reduction of the number of shares of listed companies held by the Company at the Board of Directors meeting on November 21, 2018. Also, we conducted annual review of the cross-shareholding in accordance with the policy confirmed at the Board meeting held on February 25, 2022.

(Standards for exercising voting rights)

Regarding our principle on exercising voting rights of shares we own in a company, we will exercise voting rights in order to contribute to sustainable growth and medium to long-corporate value enhancement of the invested company, on the major premise of contributing to enhancing our corporate value.

[Principle 1.7 (Related Party Transactions)]

Transactions between related parties, such as Directors and major shareholders, etc. are approved by the Board according to Regulations of the Board of Directors. The Board monitors transactions by approving individual transactions.

Matters concerning Directors who have transactions in competition with the Company and transactions with third parties where there is a conflict of interest between the Company and Directors are also approved by the Board according to Regulations of the Board of Directors. Regulations of the Board of Directors stipulate that a Director who has a special interest in any proposal that is deliberated by the Board of Directors shall not be entitled to vote on such matter.

[Supplementary Principle 2.4.1 (Ensuring Diversity, Including Active Participation of Women)]

We are aware that the promotion of the active role of diverse human resources is one of our most important management issues. Accordingly, we have set targets for the ratio of female managers as a management target in the JAL Group Medium Term Management Plan for FY2021-FY202 and have established a HR development policy and a policy to develop an environment that ensures diversity in employment of core personnel, including appointment of non-Japanese and mid-career hires to management positions. These policies and status of implementation are provided on the JAL website. (https://www.jal.com/en/sustainability/report/)

[Principle 2.6 (Roles of Corporate Pension Funds as Asset Owners)]

The Company adopts the defined benefit corporate pension plan and manages the pension fund through the JAL Corporate Pension Fund.

The JAL Corporate Pension Fund has established a fundamental policy on pension asset management and has drawn up a basic asset allocation plan in order to ensure pension benefits into the future.

Changes to the fundamental policy and implementation of new investments require resolutions by the Board of Directors and Board of Representatives. Employees with appropriate qualities are elected as Directors and Representatives.

The Vice President of Finance of the Company serves as the Pension Investment Director who executes management and investment duties of the pension fund. Members of the Secretariat strive to improve their expertise by attending external seminars and such.

The Pension Finance Committee, which is placed under the Chair of the Board of Directors, deliberates on financial operation in general, monitors operation, reports results and submits proposals to the Chair, and reports results to the Board of Representatives.

[Principle 3.1 (Full Disclosure)]

To enable our stakeholders to easily access JAL Group's corporate stance, various information such as the JAL Group Fundamental Policies of Corporate Governance, Corporate Policy, management strategies, and management plan, is posted on our website. We issue "JAL Report" containing financial information and CSR activities each year.

(http://www.jal.com/en/csr/report/)

Details of our Corporate Policy, management strategies, management plan and fundamental principles of corporate governance, etc. are as follows.

(1) Corporate Policy, management strategy, management plan (Corporate Policy)

We have established the JAL Group Corporate policy as follows. Details are provided on our website.

"The JAL Group will pursue the material and intellectual growth of all our employees, deliver unparalleled service to our customers, and increase corporate value and contribute to the betterment of society." (http://www.jal.com/en/outline/philosophy.html)

(Management strategies, management plan)

The Company has formulated the FY2021-FY2025 Medium Term Management Plan aimed at overcoming the COVID-19 pandemic and realizing "JAL Vision 2030," our vision statement of what we intend to be by 2030, and announced it on May 7, 2021. As the pandemic has forced major shifts for the global community and significant changes in values, we will move forward to realize the vision of the future that we have set for ourselves, driven by "Safety and Security" and "Sustainability "as our growth engines.

During the specified medium term, we will pursue business structural reforms and accelerate initiatives toward creating a sustainable society through our business activities, on addressing the urgent issue of rebuilding our financial foundation so that we may return to pre-COVID-19 levels of profitability and get back on the growth path.

Details of our FY2021-FY2025 Medium Term Management Plan are provided on our corporate website. (http://www.jal.com/en/outline/plan.html)

(2) Fundamental concept and fundamental policy on corporate governance

Our fundamental concept on corporate government is indicated in 1-1 Fundamental concept of this Report. The JAL Group Fundamental Policy on Corporate Government is posted on our website. (http://www.jal.com/en/outline/governance.html)

(3) and (4) (Remuneration determination policy and process, and election and appointment/dismissal of senior management, Directors and Corporate Auditors)

We have established a Nominating Committee and Compensation Committee, which are voluntary committees.

When submitting a proposal to the general meeting of shareholders concerning the appointment of candidates to the positions of Director and Corporate Auditor, the Nominating Committee comprehensively judges the personality, knowledge, ability, experience, performance and other attributes of each candidate based on an inquiry from the Board of Directors and reports back. Furthermore, in case the qualities of any member of topmanagement is found questionable due to violation of the law, harassment negligence of the Board of Directors or such, members of the Nominating Committee and other Directors excluding the person in question will immediately conduct investigations based on a motion made by a Director at a Board meeting or other meeting. The Nominating Committee or other Directors will report the result of investigations to the Board of Directors. Treatment of the person in question shall be decided through a resolution by the Board. The Company defines the President and other board members as persons with qualities to steadily get positive results toward realizing the Corporate Policy by working together with every employee based on a firm commitment to flight safety, which is the basis of existence of the JAL Group, and display of initiative in practicing the JAL Philosophy.

The Company assists candidates for President and other posts to quickly acquire grounding and discipline necessary for management through practical and diverse experiences.

Other details are provided in II-1. Establishment of Voluntary Committees and Supplementary Explanation of this Report. When appointing or removing an Executive Officer, the Board of Directors consults the Personnel Committee and takes into account the Personnel Committee's report on such matters before passing any resolution.

(5) Explanation of election and appointment/dismissal of individuals

The reason for appointment of Directors and Corporate Auditors is indicated on the Convocation Notice of the General Meeting of Shareholders.

[Supplementary Principle 3.1.3 (Sustainability initiatives)]

Our sustainability initiatives are provided on the JAL website. (https://www.jal.com/en/sustainability/initiatives/)

In order to implement strategic management toward growth, we are actively investing in human resources including human resource development and creating an environment where diverse human resources can demonstrate their individuality. We are also promoting digital IT strategies to increase diverse know-how, which is intellectual capital. Detailed strategies are provided on the JAL website. (https://www.jal.com/en/sustainability/report/)

We have announced our pledge to achieve net zero CO2 emissions by 2050 and our support for the TCFD recommendations on climate-related financial disclosures. Information on climate action is provided on the JAL website under the items Governance, Strategy, Risk Management, and Indicators and Targets according to TCFD recommendations.

(https://www.jal.com/en/sustainability/environment/climate-action/)

[Supplementary Principle 4.1.1 (Range of delegation to management by the Board of Directors)]

In order to carry out efficient decision-making, the Board of Directors delegates decision-making of matters set forth in the Administrative Authority Criteria Table to the President, pursuant to Regulations for Kessai and Administrate Authority approved by the Board. To conduct detailed deliberations at Board meetings, we have established the Executive Management Council to deliberate over important issues among executive officers including the President in advance, clarify points at issue before submitting them to the Board, and contribute to appropriate and quick decision-making by the President.

[Principle 4.8 (Effective Use of Independent Directors)]

In order to promote transparent and fair corporate activities and establish corporate governance, a minimum of one-third of the total number of directors is elected as candidates for Independent Outside Director, in accordance with Standards for Independence of Outside Directors established by the Company and enhances management monitoring.

[Principle 4.9 (Independence Standards and Qualification for Independent Directors)]

The Company's standards for determining independence are provided in II.1. Relationship with Independent Directors of this Report. Outside Directors are appointed from persons with vast knowledge and experience in various fields in order to ensure diversity. Those who do not qualify as highly independent within the meaning of our "Standards for Independence of Outside Directors" are not appointed.

When appointing candidates for the position of Independent Outside Director, the Nominating Committee elects candidates after deliberating amongst the members from an objective standpoint and reports to the Board of Directors so that the Board is operated actively, constructively and strategically by diverse humanresources and monitors and oversees from a neutral standpoint. On receiving the report from the Nominating Committee, the Board decides Independent Outside Directors through the Board's approval.

[Supplementary Principle 4.10.1(Independence of the Nominating Committee and the Compensation Committee)]

Outside Directors account for a majority of members of the Nominating Committee and the Compensation Committee respectively, and the committee chair is elected by vote by members of the committees.

The Nominating Committee has the authority and role to deliberate on candidates for Executive Officers (including Executive Officers and Directors) and report to the Board of Directors. The Compensation Committee has the authority and role to deliberate on inquiries from the Board of Directors concerning remuneration for Executive Officers (including Executive Officers and Directors) and report to the Board of Directors. When deliberating important matters concerning appointments and remuneration of Executive Officers (including Executive Officers and Directors), the committees engage in their roles and provide advice appropriately from practical and multilateral perspectives including diversity and skills.

[Supplementary Principle 4.11.1 (Concept on balance of knowledge, experience and abilities in general, diversity and scale of the Board of Directors)]

Candidates for Director are elected from among persons who have extensive experience, deep insight and specialized knowledge in various fields, with consideration to making board composition diverse in terms of gender, internationality, career, age and other variables. The Company aims to increase female Board appointments.

We have created a skills matrix specifying a set of necessary skills required of Director such as specialized knowledge and experience. They include management experience, financial accounting, legal affairs and risk management, and also safety management, which is especially important in view of the business characteristics of the Company, global experience, sales and marketing, and IT and technology.

The Nominating Committee selects candidates for Director with reference to their experience and skills based on the above concept of Board composition, and additionally takes into account management experience in other companies when selecting candidates for Independent Outside Directors, After the Board of Directors receives a report from the Nominating Committee, candidates for Director are decided by a Board resolution. On receiving a report from the Nominating Committee, the Board decides Directors as resolved by the Board.

[Supplementary Principle 4.11.2 (Status of concurrent duties of Directors and Corporate Auditors)]

When a Director or Corporate Auditor performs concurrent duties as director of another listed company, it is reported to the Board, on confirming whether holding concurrent duties will affect duties as Director or Corporate Auditor of the Company. Persons who hold concurrent positions such as Director or Corporate Auditor in more than four listed companies excluding the Company are not elected either.

The status of concurrent duties of Directors and Corporate Auditors is provided on our website. (http://www.jal.com/en/outline/directors.html)

[Supplementary Principle 4.11.3 (Analysis and evaluation of effectiveness of the Board of Directors)]

The Board of Directors has established a Corporate Governance Committee composed of the Chairperson of the Board and Outside Directors. Each year, it assesses the effectiveness of the Board and reviews operation, etc. appropriately, while referring to self-assessment by each Director, etc. An overview is carried on our corporate website. An analysis by a third-party organization is used to ensure an objective assessment. （http://www.jal.com/en/outline/corporate/governance/governance.html）

[Supplementary Principle 4.14.2 (Policy on training for Directors and Corporate Auditors)]

Legal considerations are explained to Directors to ensure that they are aware of their responsibilities including the fiduciary duty of loyalty and the duty of care as a prudent manager and opportunities are provided for continuous participation in external training, affiliated organizations and such.

We provide opportunities for Corporate Auditors for continuous participation in external training, affiliated associations, etc. in addition to providing corporate information.

To deepen the understanding of the Company of Directors and Corporate Auditors, we provide safety education such as a memorial climb up Mt. Osutaka and visits to the Safety Promotion Center, in addition to visiting frontlines. We also provide advance explanations on agenda items to be submitted for deliberation, as necessary, and opportunities to explain other matters at their request.