Japan Airlines (JAL) is rebounding from bankruptcy with plans to raise about ¥663 billion ($8.5 billion) from an initial public offering in Tokyo, slated for mid-September.
The carrier’s widely expected comeback to the Tokyo Stock Exchange, which it announced on Friday, marks a quick return to the bourse since delisting in early 2010, when it filed for bankruptcy with debts of ¥2.3 trillion. Two years on, JAL posted a record operating profit of ¥205 billion for the latest fiscal year, which ended in March.
If successful, it will be Japan’s third-biggest IPO on record, after NTT Mobile Communications Network’s $18 billion offering in 1998 and Dai-ichi Life Insurance’s $11 billion IPO in 2010, according to data by Dealogic. And it will be the second-biggest offering in the world this year after Facebook’s $16 billion IPO in May.
But JAL’s offering also comes after All Nippon Airways (ANA) just last month raised $2.1 billion, which it plans to use partly to buy new aircraft, in the biggest follow-on deal in the country so far this year. Some media reports said the move could potentially divert interest from the upcoming IPO.
Through the latest offering, the Enterprise Turnaround Initiative Corporation of Japan (ETIC) is selling all of the shares that it owns in JAL, ending its assistance to the airline and recovering its investment. The state-backed fund made a capital injection of ¥350 billion and bought 175 million shares in the company after the bankruptcy. ETIC said in a statement on Friday that it owns 96.5% of the stock in terms of voting rights and plans to sell all of the shares.
The proceeds are basically all going to the government, with JAL not receiving any money from the IPO, a company spokesman said.
ETIC is a joint-stock corporation established and authorised by the Japanese government to provide support for the revitalisation of operations at mid-sized companies, SMEs and other businesses, including large corporations that have revitalisation potential but are carrying excessive debt.
Of the 175 million shares, 131.25 million shares, or 75% of the deal, are intended for the Japanese offering and 43.75 million shares, or the remaining 25% of the deal, are for the international offering, mainly in Europe and the US, JAL said in a statement on Friday. According to a regulatory filing, the estimated price per share is ¥3,790, implying a deal size of ¥663.3 billion.
The deal is expected to price on September 10 and the listing on the Tokyo Stock Exchange is scheduled for September 19. Daiwa Securities is the global coordinator for the deal.
“Listing of the stock merely means we’re now standing at the start line for our new start,” JAL president Yoshiharu Ueki said in a statement about its re-listing plan.
As part of the turnaround measures, the airline has eliminated unprofitable routes and cut staff and pensions. For the first quarter of the current fiscal year, JAL’s net income more than doubled to ¥26.9 billion from the same period last year. Still, for the full year, it forecasts it will book ¥130 billion in net income, down from ¥186.6 billion a year earlier.
With the shaky outlook for the global economy and stiffer competition, the airline industry as a whole faces tough times ahead.
“The path that we should take is to try to survive as a full-service network carrier and emphasise routes that can maximise our strength, which is hospitality and the service spirit,” Ueki told FinanceAsia in an interview during his visit to Hong Kong last month.
“We would like to focus on international routes, particularly mid- to long-haul flights to Europe and the US. But we’ll continue to take good care of our domestic route business because it can yield revenues without much volatility.”
To combat higher fuel prices, JAL plans to update its fleet with more fuel-efficient aircraft by increasing its total number of Boeing 787s to 45, from the current four aircraft. As well as using less fuel, the 787 should also help reduce operating costs.