Japan Airlines raises $8.5 billion with IPO

09/12/2012
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Japan Airlines, the troubled flagship national carrier, recovered from its bankruptcy through drastic restructuring efforts

JAL raised eight and a half billion dollars in a stock offering, showing a turnaround from a few years ago when it faced bankruptcy.

All the shares being offered were sold, with overseas investors being allocated one quarter, and Japanese institutional and retail investors accounting for the rest. Four years ago, JAL was in a sorry state. Its mountain of debt totalled 2.3 trillion yen, about 30 billion dollars.

“After studying various solutions the government decided the best thing to do was to send JAL into bankruptcy protection, and this is what they did,” said Geoffrey Tudor, an analyst of International Communications and former director of PR at Japan Airlines. “And heading up JAL they brought in a specialist, a management guru called Kazuo Inamori, who was the founder of a very successful high-tech company, Kyocera. He has written books and famous for his philosophies of doing business. He believes in making money, in profits, and this is something JAL needed to master.

The resurrection has come at a price.

“JAL’s network was far too big,” Tudor said. “They were still flying to places that were loss making routes even through traffic was down, international and domestic routes. So he reduced these routes. He also reduced the labor forces by 40 percent. There were salary and pension cuts, and very importantly flight operations were made much more profitable by the grounding of about 100 gas guzzling aircraft, which was all part of the revitalization scheme. And the outcome of that is what were are seeing today, the IPO.”

Analysts say that the stock is undervalued, however JAL is predicting large profits this year of more than one and a half billion dollars this year. JAL is certainly not the basket case that it appeared to be only a few years ago.

Even so, the new low-cost carriers entering the Japanese market are now a force to be reckoned with. JAL owns one (Jetstar Japan), but this holiday season saw these LCCs operating at 90% capacity, while JAL and its rival All Nippon Airways had 80% load factors.

Though at present there are blue skies ahead, there may be a bumpy ride ahead for the established airlines.

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