All Nippon Airways Co said it plans to issue shares to raise up to $1.9 billion to shore up its battered finances and buy five more of Boeing Co's long-delayed Dreamliners.
Like other global airlines, ANA has suffered from the sharp downturn in air travel caused by the economic crisis, but Japan's No. 2 airline is also looking to increase investment to tap an expected rise in passenger demand once the expansion of Tokyo's Haneda airport is completed next year.
Analysts said the fund raising, ANA's first in three years, was bigger than expected, but some said the move was positive as it suggested ANA was committed to growth. In comparison, bigger rival Japan Airlines has been forced to downsize its business and seek an emergency loan from the government.
From a mid- to long-term perspective, the fundraising is a positive step because ANA needed money and it has been calling Haneda's expansion a big business opportunity...This will really differentiate ANA's and JAL's financial health, said Mitsubishi UFJ Securities analyst Ryota Himeno.
Haneda, which handles mainly domestic flights, is scheduled to open a fourth runway next year. The expansion is expected to increase annual capacity by 40 percent by 2012 and allow airlines to launch new routes.
Aiming to tap the expected rise in passenger demand from the Haneda expansion, ANA has been hiring new staff and is buying new planes to replace existing ones or launch services for new routes.
The extra five Dreamliner orders, worth about $800 million at list prices, represent a vote of confidence in Boeing's troubled project.
More than five years after ordering an initial 50 Dreamliners, the biggest launch order for any new plane in Boeing's history, ANA has yet to receive a single aircraft following a succession of delays.
ANA urged Boeing to clarify the delivery schedule for the project as soon as possible after the latest setback announced last month. It said it expects an update within several weeks.
ANA shares ended down 5.9 percent at their lowest close since October, while the benchmark Nikkei average .N225 lost 0.2 percent.
ANA said it plans to issue 537.5 million new shares. The offer, which also includes a greenshoe option of up to 37.5 million shares, would lead to a share dilution of 27.6 percent.
I think ANA wanted to do (the share offer) when the market is good and before it's too late becaue their business outlook is still uncertain given a weak passenger load, which I don't think will recover anytime soon, said Fujio Ando, a senior managing director from Chibagin Asset Management.
As the global economic slump hit demand for air travel, ANA reported a group net loss of 4.3 billion yen for the year ended in March, its first annual loss in six years.
ANA expects to return to profit this year by cutting 73 billion yen in costs, though the outlook for travel demand has been clouded somewhat by the global influenza outbreak.
ANA is also joining a growing list of Japanese companies tapping equity financing, encouraged by a one-third rally in Japanese stocks since March.
In the past few months, Daiwa Securities Group announced $2.5 billion capital increase, following a $9.7 billion offering by Sumitomo Mitsui Financial Group (8316.T) to bolster capital base. Orix Corp is also expected to announce a $1 billion public offering as early as this week.
(Additional reporting by Mariko Katsumura; Editing by Lincoln Feast)