JAL Set To Apply For Market Re-Listing

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Published: June 20, 2012

Japan Airlines is expected to apply as early as Wednesday to re-list its shares in September after raising about USD$ 8 billion in an initial public offering, doubling the government’s investment in a rare successful case of state-led restructuring in Japan.

The carrier, which rebounded sharply out of its 2010 bankruptcy and is booking record profits, may submit its application to the Tokyo Stock Exchange after a shareholder meeting on Wednesday, people familiar with the matter said.

JAL will look to raise JPY¥600 billion to 700 JPY¥billion (USD$ 7.6 billion to USD$ 8.9 billion) in the IPO, the people said, making it second in size to social networking giant Facebook’s USD$ 16 billion offering this year, and the seventh-largest ever in Japan.

A successful IPO at that valuation would allow the government to make a handsome profit on the JPY¥350 billion that a state-backed fund injected into the airline following its bankruptcy in January 2010 with USD$ 25 billion in debts.

JAL’s revival is not without controversy. Chief domestic rival All Nippon Airways has started to publicly question whether the state support has created an unfair playing field, pointing for one to a massive tax credit that could allow JAL to forgo corporate tax payments for another eight years.

But to some observers JAL’s revival represents a rare success story, standing in sharp contrast to the more common approach in Japan of propping up ailing firms with taxpayer funds without pushing for drastic restructuring.

“JAL’s quick turnaround can change the impression of Japan. In the past, there was a perception that any revival scheme in Japan took a lot of time,” said Hideyuki Ishiguro, assistant manager at Okasan Securities’s investment strategy department.

A JAL spokeswoman said she could not confirm whether the carrier would apply to re-list on Wednesday.

The Enterprise Turnaround Initiative Corporation of Japan, the state-backed fund that owns 96.5 percent of the airline, declined to comment.

The ETIC is required by its own rules to sell its stake by January 2013, or three years after taking control of JAL.

MASSIVE RESTRUCTURING

JAL’s strong recovery out of bankruptcy came on the back of a massive restructuring which included trimming 16,000 jobs, elimination of routes and pension benefit cuts. It also benefited from debt forgiveness and lower depreciation costs thanks to a massive write-off of its fleet and other assets.

It logged a record operating profit of JPY¥204.9 billion in the year ended in March. That put it roughly on par with United Continental, which recorded a profit of USD$ 2.4 billion in 2011.

But analysts are doubtful that JAL can maintain such a high level of profitability with staff and other costs set to rise and low-cost carriers challenging larger rivals.

In another hurdle for the IPO, JAL has struggled to secure the support of banks, trading houses and other domestic business partners targeted as long-term stable shareholders. Those firms have been wary of investing in JAL again after the 2010 bankruptcy and de-listing, according to sources.

JAL has been sounding out Australia’s Qantas Airways, British Airways owner IAG and other members of the oneworld alliance to take a stake in the IPO, sources have said.

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