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Japan Airlines Returns To Stock Market « Back
Selina Harrison, November 2012
Almost three years after its blockbuster bankruptcy, Japan Airlines Co. (JAL) was relisted on the Tokyo Stock Exchange on 19 September. Although shares in JAL received a somewhat muted reception, closing a small fraction higher than their ¥3790 offering price, JAL now has a market valuation of $8.5bn and the offering of the Japanese carrier is the second biggest in the world this year after Facebook Inc.

JAL’s shares actually opened on the Tokyo bourse up 0.5 percent on their offering price at ¥3810 and grew 3.03 percent to ¥3905. However, the shares failed to sustain a rally and closed the day at ¥3830, ($48.56). Shares in Japan’s former flagship carrier had been priced at the top of a range set deliberately low to increase investor appeal in the relisting, but also to avoid the same fate of Facebook, whose share price slumped below its offering price on the second day of trading. ‘‘We just listed today, and rather than waver between hope and fear on every price movement, we should focus on raising value for our shareholders in the long run,’’ said JAL president Yoshiharu Ueki after markets closed.

Even so, through the share sale, JAL was able to return to state coffers the ¥350bn ($4.4bn) in funds it received to finance its corporate turnaround. In fact, not only did JAL double the investment that the state-backed Enterprise Turnaround Initiative Corporation of Japan (ETIC), made in the carrier, the fund was able to exit its 96.5 percent stake in the airline with a sizeable profit.

Founded in 1951, JAL came to symbolise the country’s rapid economic growth, leading to its privatisation in 1987. However, as decades passed the airliner found itself with growing pension and payroll costs, and running many unprofitable domestic routes which it was politically obliged to maintain. As well as facing increasing competition from rival All Nippon Airways, the global economic downturn caused oil prices to rise and passenger numbers to decline. Suffocating under the weight of its debts, JAL officially filed for bankruptcy protection on 19 January 2010.

JAL’s restructuring was supervised by the then newly-formed ETIC. With access to up to ¥1.6 trillion ($17.7bn) of government guaranteed funds, ETIC said it would inject around ¥300bn ($3.3bn) into the airliner. Meanwhile JAL received a ¥600bn ($7.21bn) credit line and ¥730bn ($8.78bn) in debt waivers. However, by this time shares in JAL had fallen to an all-time low, valuing the firm at just $150m. In the following weeks, JAL was de-listed from the Tokyo Stock Exchange, wiping out shareholders in a company that was worth more than $6bn less than 12 months earlier.

While its operations continued, JAL had a lot of cost-cutting to do. Not only did all of its board members resign, during two years of intense reorganisation the airline eliminated 21,000 jobs (about a third of its workforce), cut pilot’s salaries by 30 percent, reduced its pension obligations, and retired its prized jumbo jets. The airline also dropped a third of its international routes and reduced by half the number of its group companies.

In all, JAL has also become a far smaller airline, and whilst it has been disciplined in its approach to cost cuts, it still faces significant challenges. Since the March 2011 earthquake, tsunami and ongoing nuclear crisis, the airline has seen depressed international and domestic travel demand. Further, as JAL now has a shorter global reach, its capacity to tap into growth is limited. As such, between 2008 and 2011, operating revenue at the airline fell by almost 40 percent to ¥1.2 trillion. On a more positive note, from an operating loss of ¥133.7bn ($1.61bn) in the year ended March 2010, JAL is targeting a record operating profit of ¥117.5bn ($1.41bn) for its fiscal year ending March 2013.

With the support of the ETIC, JAL is steadily attempting to re-establish itself as one of the world’s best international airlines. While recovery will require perseverance, JAL is making strides. Its 17 percent operating margin for the latest financial year was more than double that of the likes of Delta Air Lines, United Continental and domestic competitor, All Nippon Airways. JAL’s balance sheet is also the envy of the industry.

According to data compiled by Bloomberg, JAL’s stock market relisting was the second-biggest in Japan in more than a decade. Dai-Ichi Life Insurance Co. raised ¥1 trillion in a 2010 sale, which also accounted for about half of the $17.6bn raised in airline IPOs worldwide during this period. In contrast to the ¥150bn raised via 36 Japanese offerings in the whole of last year, JAL’s offering boosted the amount raised in 25 priced IPOs in Japan this year to ¥798bn.

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