Japan Airlines : Corporate Governance Reprot(Oct22,2022)

Corporate Governance Report

Last Update: Oct.22.2021

Japan Airlines Co., Ltd.

Securities code: 9201

http://www.jal.com/

1. 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 implements all principles of the Corporate Governance Code and has a corporate governance

structure in place. We will continuously work to increase corporate value.

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

[Principle 1-3 (Fundamental capital strategy 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.

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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 18, 2021.

(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 (Transactions between related parties) ]

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.

[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.

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[Principle 3-1 (Improving information 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)

1. 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 top management 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.
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(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 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 utilization of Independent Outside Directors)]

To promote transparent and fair corporate activities and establish corporate governance, the Board of Directors elects an appropriate number of three or more Independent Outside Director candidates according to Standards for Independence of Outside Directors established by the Company and enhances management monitoring.

[Principle 4-9 (Standards for Independence of Outside Directors and Aptitude) ]

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" (Appendix②) 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 human resources 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 4-11-1 (Concept on balance of knowledge, experience and abilities in general, diversity and scale of the Board of Directors) ]

The Board of Directors is comprised of persons with diverse knowledge, experience, abilities, and leadership, from among those capable of performing responsibilities required of directors. There are 3 to 15 members in the Board (currently 9 directors, including 1 women).

The Nominating Committee nominates Directors based on the abovementioned principle of members comprising the Board. On receiving a report from the Nominating Committee, the Board decides Directors as resolved by the Board. Outside Directors are described in Principle 4-9.

[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.

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-assessmentby each Director, etc. An overview is carried on our corporate website. The Lead Independent Outside Director serves as the Chair of the Corporate Governance Committee.

（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.

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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.

[Principle 5-1 (Policy on constructive dialogue with shareholders) ]

We are aware that the general meeting of shareholders is a venue for constructive dialogue with shareholders, secure and provide a period for them to sufficiently examine accurate information from their standpoint through the Convocation Notice of the General Shareholders' Meeting, etc.

Furthermore, we conduct IR (Inventor Relations) activities to maintain positive interactive communication under the following policy, in which Representative Directors, the Finance and Accounting Director, etc. Engage in active dialogue, and fairness, accuracy and continuity of management strategies, business strategies, financial information, and such are emphasized.

1. We assign the Finance and Accounting Director and General Affairs Director as management to oversee dialogue with shareholders.
2. We assign a supervisor to oversee information gathering, management and disclosure, and also staff to implement these duties in the Finance Department, and disclose information in a timely, fair and appropriate manner in coordination with related departments.
3. We hold meetings to explain our financial results and management plan when announcing them, issue "JAL Report" and "To Our Shareholders," etc. and arrange tours of facilities, (which is suspended at the moment considering the COVID-19 outbreak) etc. to promote investment opportunities and improve information disclosure.
4. We feedback results of dialogue with shareholders to management, as necessary, so that management may share the shareholders' requests and opinions and an awareness of issues, and reflect their views in corporate management.
5. We establish and disclose a "silent period," during which we do not provide any replies or comments to inquiries or information on corporate status to prevent information leaks and ensure fairness. We conduct information management and control insider information.

[Principle 5-2 (Establishment and disclosure of management strategies and 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. In order to adapt to changes in the external environment and achieve sustainable growth and development, we will put forth Company-wide efforts to achieve our management strategies, built on the pillars of "Business Strategy, Financial Strategy, and ESG Strategy."

Going forward, we will assess changes in the external environment and given conditions, make necessary revisions to the Plan, and formulate and publish a Rolling Plan each fiscal year.

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