Japan Airlines Co. will seek 663
billion yen ($8.5 billion) in the second-biggest initial public
offering this year, completing a two-year turnaround from
bankruptcy into the world?s most profitable carrier.
The airline will list on the Tokyo Stock Exchange on Sept.
19, it said today in a Ministry of Finance filing. Its
government-backed owner will sell 175 million shares at a
tentative price of 3,790 yen apiece. That values the carrier at
about five times projected profit, less than half All Nippon
Airways Co.?s about 12-times valuation.
The biggest initial public offering since Facebook Inc.?s
marks JAL?s return after former Chairman Kazuo Inamori slashed
jobs, cut debt and retired older, less fuel-efficient aircraft
to revive profit. The proceeds will be used to return a 350
billion yen to the state-backed turnaround body that invested in
the airline, while the government will get the remainder, a
windfall of as much as 313 billion yen at the tentative price.
?The turnaround has been done extremely well,? said Peter Harbison, executive chairman at the Sydney-based Centre for Asia
Pacific Aviation. ?They?ve done a lot of sensible things in
reducing routes and corporate complexity that dragged it down.?
JAL, which will get no money from the sale, yesterday
reiterated its profit forecast of 130 billion yen for the year
ending March 31, compared with 40 billion yen at larger Tokyo-
based rival ANA.
The global average valuation for airlines worth at least $5
billion is 10 times estimated earnings, according to data
compiled by Bloomberg.
Record Profit
JAL will displace ANA as the world?s fourth-largest airline
by market value after the offering, according to current values
and the tentative share-sale price. Latam Airlines Group SA is
the largest at $11.3 billion, followed by Air China Ltd. at
$10.9 billion and Singapore Airlines Ltd. at $10.1 billion.
?JAL is regarded pretty highly among market participants
after improving its earnings,? said Ryota Himeno, an analyst at
Barclays Securities Japan Ltd. ?Still, with the emergence of
low-cost carriers in Japan, and efforts from ANA, competition in
the airline market is set to intensify.?
JAL posted a record profit of 187 billion yen, the
equivalent of $2.4 billion, last fiscal year, more than twice
that of Air China, the second-most profitable, with $1.1
billion, according to data compiled by Bloomberg.
Inamori?s Role
Japanese tycoon Inamori, who is also a Buddhist priest, had
no experience managing an airline before he was asked by the
prime minister to oversee the airline?s turnaround in 2010. The
80-year-old is the founder of Kyocera Corp. (6971), one of the nation?s
largest makers of electronic parts, and also set up one of the
founding companies of KDDI Corp. (9433), the nation?s second-biggest
wireless operator.
The Enterprise Initiative Turnaround Corp. of Japan, the
government-backed body that funded JAL?s restructuring, will
sell its 97 percent stake in the IPO.
The share offering will be the largest in Japan since Dai-
Ichi Life Insurance Co. raised 1 trillion yen, including the
exercise of overallotment options, in March 2010, according to
data compiled by Bloomberg.
Daiwa Securities Co. is managing JAL?s IPO in Japan along
with firms including Nomura Securities Co. and Mizuho Securities
Co., according to the prospectus. Merrill Lynch International
and Morgan Stanley & Co. International Plc. will manage the
offering outside Japan, along with Daiwa Capital Markets Europe
Ltd.
Low-Cost Revolution
The sale comes as JAL and ANA begin competing in the low-
cost travel market because of rising demand for budget flights.
AirAsia Japan Co., a venture between ANA and AirAsia Bhd. (AIRA),
this week became the third budget airline to start flights in
the country this year. ANA affiliate Peach Aviation Ltd. started
operations in March and Jetstar Japan Co., whose owners include
JAL and Qantas Airways Co., began flying last month.
ANA is also selling shares. The carrier said last month it
expects to raise as much as 175 billion yen by selling 1 billion
new shares to pay for new aircraft and finance acquisitions. Net
income was 668 million yen in the first quarter, compared with
an 8.5 billion yen loss a year earlier, the carrier said today
in a statement. Sales rose 13 percent in the quarter to 343
billion yen.
Dividend Outlook
JAL said it aims to pay dividends of about 15 percent of
net income, according to the prospectus. ANA has said it is
targeting a payout of 25 percent of profit.
Tokyo-based ANA fell 1.7 percent to 177 yen as of the close
in Tokyo trading, extending this year?s decline to 18 percent.
The benchmark Nikkei 225 Stock Average has gained 1.2 percent
this year.
JAL slashed dozens of flights during restructuring,
including services to Milan, Rome and Amsterdam, as it retired
its fleet of Boeing Co. (BA) 747 planes and other aircraft. It cut 28
international routes and 41 domestic ones over the three years
to the end of March 2011. The cuts also meant JAL surrendered
its title as Japan?s largest carrier to ANA.
JAL flew about 35.8 million passengers on international and
domestic routes last fiscal year, compared with 42.6 million
passengers for ANA.
The then-bankrupt carrier cut about a third of its
workforce, about 16,000 people, under the leadership of Inamori,
who is now chairman emeritus, more than double the number
suggested by the previous president Haruka Nishimatsu.
Expanding Internationally
JAL is now expanding internationally as it adds flights
with Boeing?s more fuel-efficient 787 planes and teams up with
other airlines to tap their networks. The carrier began flights
to Boston in April and it plans to start service to San Diego
and Helsinki as well.
The carrier chose to stay with AMR Corp. (AAMRQ)?s American
Airlines in the Oneworld alliance in 2010, rejecting an offer
from Delta Air Lines Inc. to join Skyteam, which included loans
to help its restructuring.
JAL and American Airlines last year started a venture on
Pacific flights that sets fares, sells tickets and decides
schedules on routes to boost sales and pare costs. The Japanese
carrier is also discussing a venture with British Airways on
European routes. British Airways has said it would consider
buying a stake in JAL.
To contact the reporters on this story:
Chris Cooper in Tokyo at
ccooper1@bloomberg.net;
Kiyotaka Matsuda in Tokyo at
kmatsuda@bloomberg.net
To contact the editor responsible for this story:
Neil Denslow at
ndenslow@bloomberg.net
Enlarge image
Japan Airlines Set to Raise About $8.5 Billion in IPO Next Month
The share offering will be the largest in Japan since Dai-Ichi Life Insurance Co. raised 1 trillion yen, including the exercise of overallotment options, in March 2010, according to data compiled by Bloomberg.
The share offering will be the largest in Japan since Dai-Ichi Life Insurance Co. raised 1 trillion yen, including the exercise of overallotment options, in March 2010, according to data compiled by Bloomberg. Photographer: Junko Kimura/Bloomberg
July 18 (Bloomberg) ? Yoshiharu Ueki, president of Japan Airlines Co., talks about the carrier?s business outlook amid global economic uncertainty, and the impact of a strong yen on the company.
JAL, which exited bankruptcy last year, will raise at least 500 billion yen ($6.3 billion) in an initial public offering as early as in September, two people familiar with the matter said in January. Ueki declined to comment on the share sale. He spoke with Bloomberg?s Susan Li in Hong Kong yesterday. (Source: Bloomberg)
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