Business and Other Risks

Matters that could significantly impact the judgments of investors are discussed below.
Among the matters discussed below, those concerning the future have been identified based on judgments made by the JAT Group as of the end of the current fiscal year.

The JAT Group's Business Base

Our group, as the enterprise responsible for the construction, management, and operation of Haneda Airport's Domestic Passenger Terminal and other facilities, and with core businesses that provide office rental, retail store, dining, and travel services to the airport, is now expanding its business parameters to include wholesaling and licensing operations in the Haneda International Airport International Passenger Terminal Building. We provide consigned services and wholesale services at Haneda Airport's new international passenger terminal building, which opened for service in October 2010. We are also engaged in activities like sales of merchandise and the provision of food and beverage services at Narita International Airport, Kansai International Airport, and other airports as well. The JAT Group leases to other parties commercial real estate it owns outside of airports, and we apply experience we have accumulated over the years to develop new businesses both inside and outside airport facilities.

Business and Other Risks for the JAT Group

The JAT Group has identified the business and other risks described below. To minimize the business impact of these risks should they materialize, the JAT Group has diversified its revenue base both geographically (among Haneda, Narita International, and other airports) and operationally (among facilities management operations, merchandise sales operations, and food and beverage operations). Moreover, it has strengthened measures to address the possibility of operating expense increases in each of its businesses. Through these and other prudent steps, the JAT Group has endeavored to enhance its core business strengths and boost its overall capabilities.

(i) The JAT Group's core businesses consist of the leasing of offices and other spaces in airport passenger terminal buildings and the operation of merchandise sales, food and beverage services and travel-related services for air travelers. As such, it is highly reliant on the airline companies that are its primary lessees and the air travelers who are its primary customers. Fluctuations in international and domestic passenger volume resulting from international political or economic upheaval, natural disasters, and developments like the emergence of new strains of influenza, and the business results of airline companies, could significantly impact the JAT Group's business results and financial position.

(ii) The JAT Group operates its key business—operation of the domestic and international passenger terminal buildings at Haneda Airport—based on its designation as an Airport Facilities Operator pursuant to provisions of the Airport Act. Therefore, legal or organizational changes concerning terminal building operations and changes in airport management policy by the national government (which oversees airport management) or regulatory authorities, could significantly impact the JAT Group's business results and financial position.

(iii) The Ministry of Land, Infrastructure, and Transportation, with the intention of spurring growth in the aviation industry and revitalizing the Japanese economy, is pushing ahead with a triple strategy consisting of further liberalization of the aviation industry, greater acceptance of new businesses such as LCC, and reorganization of airport management. In respect to the reorganization of airport management, progress is being made through such initiatives as implementing a new law that puts the airport under Government management while also making better utilization of the power of the private sector. It is likely that our group's future operating results and financial status will be greatly influenced by the new policies set by the Government and its various administrative bodies.

(iv) The JAT Group has constructed and owns two domestic passenger terminal buildings at Haneda Airport. Within these two buildings it leases office and other space, and operates merchandise sales, food and beverage services, and travel-related services. The JAT Group has endeavored to take all reasonable measures to prevent or respond to disasters, criminal activity, and accidents to promote the safe and comfortable operation of its terminal buildings. Despite its best efforts, however, earthquakes, fires, acts of terror, or other such events resulting in injuries, deaths, or property damage at the airport or terminal buildings could significantly impact the JAT Group's business results and financial position.

(v) The JAT Group operates airport food and beverage services, sells processed and other food products in airport retail stores, and engages in the production and sale of in-flight meals. In pursuing these activities, it pays strict attention to food safety. Damage to the JAT Group's reputation, administrative dispositions, and other such consequences of food poisoning, the inclusion of foreign objects in products, or other quality assurance issues at a dining facility or retail store, for example, could significantly impact the JAT Group's business results and financial position.

(vi) The JAT Group, in order to efficiently and stably secure business financing, has entered into syndicated loan agreements with financial institutions. These agreements include financial covenants. The violation of these covenants—for example, by a significant lowering of JAT's credit rating following a change in tax regulations or the Group's business environment—could result in the loss of the benefit of the term and significantly impact the JAT Group's cash flow, business results and financial position.