The stock price of Japan Airlines (JAL) was up, after raising 663 billion yen, or $8.5 billion, during its initial public offering onthe Tokyo Stock Exchange. On Wednesday, the company’s stock value opened 3 percent above its IPO price at 3,790 yen per share. At the end of the day, JAL stock closed 1.1 percent above its offering price at 3,380 yen per share.
Japan Airlines listed back on the Tokyo Stock Exchange nearly three years after filing bankruptcy in 2010. The 663 billion yen ($8.5 billion) generated from its IPO nearly doubled the its 350 billion yen bailout money from the Japanese government. According to reports, JAL’s recovery is one of the fastest in the Japanese corporate history. JAL’s IPO is the second largest public offering this year, following Facebook ‘s (Nasdaq:FB) $16 billion offering.
During a press briefing at the Tokyo Stock Exchange, JAL President Yoshiharu Ueki said, “Listing our stock is just the starting line for us as a private company. I’m not going to get caught up in where the stock is today. We will focus on boosting our corporate value through sound management, and work to gain the trust of our shareholders.”
On the other hand, Transport Minister Yuichiro Hata said he will monitor the progress of Japan Airlines recovery. His top priority is to ensure the safety and reliability of the carrier. He said, “We will provide guidance as needed.”
According to the report from Reuters, the Enterprise Turnaround Initiative Corporation of Japan (ETIC), a government-backed fund that provided the 350 billion yen bailout money to the carrier, sold all of its 96.5 percent interest during the IPO, and generated $4 billion profit for the government.
The ETIC supervised the restructuring of JAL. The Japanese carrier reduced its bloated workforce by 31,000, cut its pension benefits, and stopped the operations of its ageing and fuel in-efficient jumbo jets. The company invested in low-cost carriers and improved its routes.
In its quarterly earnings ending in March 2012, Japanese Airlines posted 187 billion yen ($2.4 billion) in profits. Japan Airlines is the second biggest airline, in terms of market value alongside Air China Ltd. (SHA:601111) (HKG:0753) Singapore Airlines Ltd. (SGX:C6L) is the largest, with more than a $12.6 billion market capitalization. Japan Airlines has approximately an $8.8 billion market capitalization at its opening price.
Some analysts are uncertain if JAL’s investors are willing keep their shares in the company in the long-term, since 70% are retail investors.
Ryota Himeno, analyst from Barclays Securities Japan Ltd. said, “In view of intensifying price competition and the rise of low-cost carriers, the investors don’t expect medium-term to longer-term growth of the industry.”
In a research note to investors, Nicholas Cunningham, analyst at Macquarie, wrote, “We find it difficult to recommend JAL or any other Japanese airline as a long-term fundamental investment. In short, our recommendation comes down to a valuation call.”
On the other hand, Masato Futoi, head of cash equity trading at Tokai Tokyo Securities said, “I’m not too bullish on JAL. Low-cost carriers have a larger market share now and competition is fiercer. It’s unclear whether they can maintain their current level of profit.”
Meanwhile, in a research note to investors, CLSA Asia Pacific Markets wrote that JAL will face strong competition. Its free cash flow will remain healthy in the coming years to offset capital expenditures.
