Japan Airlines is planning to tap Australia's Qantas Airways
Japan Airlines (JAL) is planning to raise a minimum of 500 billion yen (3.80 billion pounds) in a relisting of its shares in Tokyo that could come as early as September, sources have told Reuters. The IPO would allow a state-backed fund to recoup the 350 billion yen it injected into the company after its bankruptcy in 2010.
The former national flag 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 plank of 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 with 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 <0293.HK>, 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 with 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 materialise.
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 Corp of Japan (ETIC), holds 96.5 percent of JAL after injecting 350 billion yen in the wake of its collapse in 2010 with about $25 billion in debts.
Nomura Holdings Inc <8604.T> and Daiwa Securities Group Inc <8601.T> are joint global coordinators for the public offering, which will be Japan's largest since Dai-Ichi Life Insurance <8750.T> raised 1 trillion yen in 2010.
JAL emerged from bankruptcy a year ago after slashing 16,000 jobs, cutting pension benefits and paring its international and domestic routes. It logged a record operating profit of 188.4 billion yen 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 cut-throat industry claimed one of its key Oneworld partners in American Airlines, which filed for bankruptcy protection late last year.
(Editing by Joseph Radford and Matt Driskill)