Bloomberg News

Japan Air Plans IPO as Budget Carriers Threaten Resurgence

January 09, 2012

(Updates share decline in eighth paragraph, stock price in 17th paragraph.)

Jan. 6 (Bloomberg) -- Japan Airlines Co. is preparing for an initial public offering that may make it the world’s most valuable carrier even as new low-fare airlines threaten to lure travelers in its home market.

Shareholders of JAL, which exited bankruptcy protection in March, are considering selling as much as 1 trillion yen ($13 billion) of stock as early as September, according to two people familiar with the matter. That would be enough for the Tokyo- based airline to surpass Air China Ltd. as the world’s biggest by market value.

The sale may struggle to reach the possible highest amount because concerns about competition may outweigh the benefits of a turnaround that has enabled JAL to return to profit, said Senri Sasahara, chief executive officer of Innovative Advisor Corp. The airline faces new challenges this year from two budget ventures backed by All Nippon Airways Co. and JAL itself is also forming a low-cost carrier with Qantas Airways Ltd.

“The new budget carriers could be a threat to the IPO,” said Sasahara, who advises companies on strategic investments. “The amount sought may be a bit too ambitious.”

JAL’s shareholders may seek as little as 500 billion yen in the sale, said the two people, who declined to be identified as the matter is private. The carrier plans to submit its IPO filing to the Tokyo Stock Exchange in July, they said.

ETIC Stake

State-backed Enterprise Turnaround Initiative Corp. of Japan owns 97 percent of JAL after injecting cash to support the restructuring. The fund must sell its stake by January 2013, which will be three years after its takeover.

Taro Namba, a spokesman for JAL, declined to comment on the size of the planned IPO yesterday. He did say that Nomura Holdings Inc. and Daiwa Securities Group Inc. will lead the sale.

At 1 trillion yen, the IPO would match the size of Dai-ichi Life Insurance Co.’s in 2010. That was Japan’s biggest since 1998 when NTT DoCoMo Inc. raised 2.1 trillion yen, according to data compiled by Bloomberg. Nexon Co. held Japan’s largest IPO last year, raising 91 billion yen. The online-game developer has fallen 13 percent from its December sale price.

If JAL’s shareholders sell their entire stake, the IPO would value the carrier at as much as 8.3 times its 120 billion yen forecast for net income in the year ending March 31. All Nippon, Japan’s largest listed carrier, is valued at about 27 times its 20 billion yen forecast for the same period, based on data compiled by Bloomberg.

JAL Liabilities

JAL and two units sought protection from creditors in January 2010, listing 2.32 trillion yen of liabilities. The airline pulled its stock from the Tokyo bourse the following month, wiping out shareholders in a company that was worth more than $6 billion less than a year earlier.

JAL had 600 billion yen of sales in the six months to Sept. 30, compared with 705 billion yen at Tokyo-based All Nippon. It expects to make an operating profit of 140 billion yen this fiscal year after cutting a third of its staff, shedding planes and axing loss-making routes.

“I want to see their new cost structure before making any judgment” on valuations, said Masayuki Kubota, who oversees the equivalent of $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo. That’s “the most important thing.”

The new challengers to JAL will include AirAsia Japan, a venture between All Nippon and Malaysia-based AirAsia Bhd., the region’s largest budget carrier. The startup intends to begin short-haul flights from Tokyo’s Narita Airport in August and then add long-haul services next year. The new airline has said it will offer fares as much as two-thirds cheaper than traditional carriers.

All Nippon is separately backing Peach Aviation Ltd., which intends to begin flights by March from Osaka’s Kansai Airport. The carrier will begin international routes in May.

ANA Competition

All Nippon is worth $7.1 billion, making it the world’s fourth biggest carrier by market value, according to data compiled by Bloomberg. It trails Air China, which is worth $11.7 billion, Singapore Airlines Ltd. and LAN Airlines SA.

“We will focus on cutting costs and boosting profit to increase our competitiveness,” said Ryosei Nomura, an All Nippon spokesman. “Our rival is not just JAL, but all airlines flying in Japan.”

All Nippon rose 0.5 percent to 217 yen at the close of trading in Tokyo. It’s dropped 29 percent in the past year, compared with a 21 percent decline for the Topix Index.

Jetstar Japan

JAL is entering the low-cost market by setting up Jetstar Japan with Qantas and Mitsubishi Corp. The new airline will begin domestic services by year-end and it expects 100 billion yen in annual sales within a few years, Bruce Buchanan, chief executive officer of Qantas’s Jetstar unit, said in August.

Skymark Airlines Inc., Japan’s biggest low-cost carrier, has also ordered six double-decker Airbus SAS A380 planes in a bid to challenge JAL and All Nippon on long-haul international routes.

JAL is “going to go through a lot domestic pressure,” said Neil Hansford, chairman of Strategic Aviation Solutions, an industry adviser. “I am not sure why anyone would be signing up” for a share sale at the highest price.

--With assistance from Robert Fenner in Melbourne and Takahiko Hyuga in Tokyo. Editors: Neil Denslow, Robert Valpuesta

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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