Skift Take

JAL is in an excellent state right now, thanks to a restructuring that slashed employees and removed debt. But it's kidding itself if it thinks investors who were burned by its bankruptcy will stand by while the line tries to pick and choose "quality" shareholders.

Japan Airlines has given up on the idea of securing stable shareholders to hold at least 10 percent of its stock ahead of its listing because such a move would breach industry rules, Chairman Emeritus Kazuo Inamori said.

The airline has been sounding out trading houses and other business partners as potential investors ahead of its roughly $8 billion initial public offering slated for next month, sources with knowledge of the matter have told Reuters.

But Inamori, who oversaw JAL’s restructuring following its bankruptcy in early 2010, said he has been told that soliciting specific investors before the listing would run afoul of brokerage industry rules.

Japan Airlines is owned 96.5 percent by a state-backed fund called the Enterprise Turnaround Initiative Corporation of Japan (ETIC). Kyocera Corp, a electronics components company founded by Inamori, also owns a small stake.

From his experience of managing Kyocera and another listed company, Inamori said he learned the merits of securing long-term shareholders and had hoped Japan Airlines would be able to find a group to hold at least 10 percent of the firm.

“But I have heard from securities companies and the ETIC that it is now difficult to find stable shareholders before going public,” Inamori told a briefing on Thursday.

“I would like for companies that are favorable to JAL to buy our stock from the market after our listing and to play the role of stable shareholders.”

Inamori’s comments represent a toning down somewhat of his prior statements. In April, he was quoted by the Nikkei newspaper as saying that finding stable shareholders was an important issue for the company and that he wanted major Japanese companies as well as overseas partners to hold JAL stock.

Sources with knowledge of the matter have told Reuters that Japanese business partners are wary of investing in JAL again after many were wiped out in the bankruptcy, which rendered shares worthless and required banks to forgive debt.

JAL also plans to tap Australia’s Qantas Airways, British Airways owner IAG and other members of the Oneworld alliance as investors to help stabilize its shareholder base and advance its strategy of boosting overseas routes, sources have said.

JAL has emerged from bankruptcy as the most profitable airline in the world, thanks mainly to a massive restructuring that cut about a third of its workforce but also the lower interest burden stemming from debt waivers and a smaller depreciation costs from a write-down of its fleet.

JAL is also benefiting from a roughly $4.5 billion tax credit tied to its corporate reorganization that means it is unlikely to pay any corporate tax for the next several years.

On Thursday, it reported a more than doubling of net income to 26.9 billion yen ($343.81 million) on sales of 286.7 billion yen, up 12.5 percent. That builds on a strong showing in the full year ended in March when it booked an industry-leading operating profit of 205 billion yen.

The ETIC is expected to sell its entire stake in the IPO for 600 billion to 700 billion yen, earning a handsome profit on the 350 billion yen in taxpayer-backed funds it injected after the carrier’s bankruptcy in 2010.

Reporting by Nathan Layne; Editing by Michael Watson and Ryan Woo


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