TOKYO Japan Airlines applied on Wednesday to re-list its shares in September after it has raised about $8 billion in an initial public offering, doubling the government's investment in a rare successful case of state-led restructuring in Japan.
The carrier, which rebounded sharply from bankruptcy and is booking record profits, submitted its application to the Tokyo Stock Exchange after an annual shareholder meeting, a person with knowledge of the matter said.
JAL is looking to raise 600-700 billion yen ($7.6-$8.9 billion) in the IPO, sources have said, which would make it the second biggest offering this year after social networking giant Facebook's (FB.O) $16 billion IPO, and the seventh-largest ever in Japan. The listing is expected in mid-September.
A successful IPO at that valuation would allow the government to make a handsome profit on the 350 billion yen a state-backed fund injected into the airline following its bankruptcy in January 2010 with $25 billion in debts.
JAL's revival is not without controversy.
Chief domestic rival All Nippon Airways (9202.T) has started to publicly question whether state support has created an unfair playing field, pointing to a massive tax credit that could allow JAL to forgo corporate tax payments for another eight years.
But to some observers JAL represents a rare success story, in sharp contrast to a common approach by both the state and the country's top lenders of propping up ailing firms with funds without pushing for tough restructuring.
"JAL's quick turnaround can change the impression of Japan. In the past, there was a perception that any revival scheme in Japan took a lot of time," said Hideyuki Ishiguro, assistant manager at Okasan Securities' investment strategy department.
A JAL spokeswoman said she could not confirm whether the carrier had applied on Wednesday to re-list. The Tokyo Stock Exchange also declined to comment. Official confirmation normally comes once applications have been approved.
The Enterprise Turnaround Initiative Corporation of Japan, the state-backed fund that owns 96.5 percent of JAL and is required by law to sell its stake by next January, or three years after its investment, declined to comment.
JAL's strong recovery out of bankruptcy has come on the back of a massive restructuring that cost 16,000 jobs, several routes and cuts to pension benefits. It was also helped by debt forgiveness and lower depreciation costs thanks to a write-off of its fleet and other assets.
It posted record operating profit of 204.9 billion yen in the year to end-March - roughly on par with industry leader United Continental Holdings (UAL.N), which made a profit of $2.4 billion last year.
But analysts doubt JAL can keep up that level of profitability with labor and other costs set to rise and low-cost carriers starting to build a presence in Japan. JAL itself projects its operating profit will fall to 150 billion yen in the current year to next March.
"I'm highly skeptical whether they can maintain this high level of profitability, especially after the IPO," said Tsutomu Noda, managing director and co-Japan representative of restructuring advisory firm AlixPartners Asia. "The biggest issue for the IPO is what's the equity story. The airline industry is suffering from many negative factors such as recession, fuel cost increases and tougher competition."
AlixPartners consulted for JAL in 2010 when it was working with creditors in a bid to avoid bankruptcy.
In another hurdle for the IPO, JAL has struggled to secure the support of banks, insurers and other domestic business partners to help it meet its goal of putting at least 10 percent of its stock in the hands of stable, long-term shareholders.
Those firms are now weighing the prospects of ensuring good ties with JAL against the risk of investing in such a volatile industry and potentially saddling their balance sheets with equity losses again, sources have said.
"We feel frustrated. Our shareholding was reduced to just a scrap of paper," said a top executive at an insurer which saw its shares of JAL reduced to zero in the 2010 bankruptcy. "I think everyone shares the same feeling of anger. But we still have to consider whether to buy the stock without any prejudice since airlines are big customers of ours."
JAL has sounded out Australia's Qantas Airways (QAN.AX), British Airways owner IAG (ICAG.L) and other members of the Oneworld alliance to take a stake in the IPO, sources have said.
Fostering Oneworld relationships is viewed as important for JAL as it seeks to boost its seat capacity on international routes by 25 percent over the next five years, offsetting expected weakness on domestic routes.