Japan Airlines is planning to tap Australia's Qantas Airways, British Airways' owner IAG and other members of the oneworld alliance as investors in an initial public offering expected to be worth at least USD$6 billion, three people with knowledge of the carrier's strategy said.
Japan Airlines (JAL) is planning to raise a minimum of JPY¥500 billion (USD$6.03 billion) in a relisting of its shares in Tokyo that could come as early as September, sources have told reporters. The IPO would allow a state-backed fund to recoup the JPY¥350 billion it injected into the company after its bankruptcy in 2010.
The carrier is eager to secure a group of stable shareholders and in Japan it is targeting banks, trading companies and other business partners as possible investors in the IPO.
The move to add oneworld members to its roster of shareholders is aimed at bolstering overseas routes, a key block in its rebuilding strategy. It would also help JAL reach a target of putting 10 to 20 percent of its stock in stable hands.
Last week, JAL's chairman, Masaru Onishi, met the CEO of Qantas, Alan Joyce, IAG's Willie Walsh and other oneworld leaders at a gathering in Berlin. Onishi explained JAL's recovery from bankruptcy and its business strategy, one of the sources said.
JAL has not yet officially filed for its IPO and regulations restrict Onishi and other JAL executives from soliciting investments or talking in detail about its IPO plans at this stage. But the context of such conversations is clear, the people said.
"There is a mutual understanding without the issue being explicitly addressed," said one of the sources, all of whom spoke on condition of anonymity due to the sensitivity of the matter. "This is a move to secure stable shareholders."
JAL officials declined to comment, but IAG has already given notice of its interest in the IPO.
Walsh told the Nikkei newspaper earlier this month that he considered JAL an important partner and that IAG would consider taking a stake.
For its part, JAL views British Airways as a key component of its European strategy. Last month the two carriers agreed to a revenue-sharing deal for flights between Europe and Japan, expanding the choice of flights.
JAL and Qantas are joint investors in budget airline start-up Jetstar Japan and have code-sharing agreements on international routes.
JAL joined oneworld in 2007, one of the three major global alliances that pool frequent flyer miles and feed passengers between airlines. Other members include Cathay Pacific Airways, American Airlines and Finnair.
Qantas and IAG are seen as the two most likely to invest, given their size and status as core members of oneworld. But JAL will continue talking to all members in the hopes they will participate in the IPO, one of the sources said.
Any commitment would likely be limited to a few percent and be viewed by both sides more as a way to bolster ties rather than as a financial investment. Japanese law limits foreign ownership in an airline to a one-third stake.
"It is not clear yet whether an investment will be 1 percent, 2 percent or even 10 percent. It all depends on the partner," said one of the sources. "We want to build stronger ties."
OVERSEAS BENT, BURNED BANKS
Fostering oneworld relationships is important for JAL as it seeks to boost its seat capacity on international routes by 25 percent over the next five years, offsetting an expected decline on routes in its sluggish domestic market.
Securing the support of its overseas partners for the IPO could also take on a new importance if interest from domestic partners fails to appear.
Creditor banks were burned before in the carrier's bankruptcy and are under pressure to reduce shareholdings to meet tougher global capital rules. They are particularly wary of investing in JAL, the sources said.
"The interest from banks is not so strong," one of the sources said.
The state-backed fund, the Enterprise Turnaround Initiative Corporation of Japan (ETIC), holds 96.5 percent of JAL after injecting JPY¥350 billion in the wake of its collapse in 2010 with about USD$25 billion in debts.
JAL emerged from bankruptcy a year ago after cutting 16,000 jobs, reducing pension benefits and paring its international and domestic routes. It logged a record operating profit of JPY¥188.4 billion for the 2010 financial year.
But the airline's recovery has been built in large part on cost-cutting and mass debt forgiveness and it faces a tough challenge in selling investors on its ability to deliver profits once it is out of state hands.
The notoriously cutthroat industry claimed one of its key oneworld partners in American Airlines, which filed for bankruptcy protection late last year.