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Publication Date : 06-08-2012
Japan Airlines is set to complete its rehabilitation process at remarkable speed following a recent decision to relist the company about 2-1/2 years after it was delisted from the Tokyo Stock Exchange in February 2010.
Last Friday, the TSE approved JAL's September 19 relisting on the First Section.
However, some people criticised JAL's return to profitability, arguing that the assistance from the government has created an unfair environment for rivals, including All Nippon Airways.
Also last Friday, JAL President Yoshiharu Ueki issued a statement saying, "We regret past failures and we'll continue to do our utmost to improve earnings without resting on our laurels due to the current good performance."
The government's Enterprise Turnaround Initiative Corporation of Japan (ETIC), which holds a 96.5 per cent stake in JAL, will sell all of its shares after JAL's stocks are relisted on the TSE.
Some economists predict the total market value of JAL's stocks at the time of the relisting will be 600 billion yen (US$7.65 billion) or more.
As ETIC injected 350 billion yen in public funds into JAL's capital for the shares, the firm is expected to fully recover its investment, leaving no financial burden on taxpayers.
According to the TSE, it usually takes at least five years for a company that has been delisted from the First Section to return. JAL's comeback is therefore seen as surprisingly quick.
The comeback has been led by JAL's earnings, which improved much more than economists had predicted.
For the April-June quarter of 2012, the airline's consolidated operating profit jumped 83.1 per cent from the same period a year before to a record 31.4 billion yen.
Also, after filing for bankruptcy in January 2010, JAL implemented thorough restructuring measures, including cutting more than 16,000 jobs and dropping unprofitable regional service routes, both of which proved to be effective.
The government's injection of public funds to increase JAL's capital, as well as a waiver by creditor banks of 520 billion yen in debt, also greatly contributed to JAL's rehabilitation.
However, some people are critical of the bailout of JAL, which saw a V-shaped recovery thanks to the government's assistance, saying it is unfair to ANA--JAL's biggest rival.
In an announcement on Friday of its business results for the April-June quarter of 2012, ANA said its operating profit for the period was 11 billion yen, lower than JAL's.
ANA said it was closely watching JAL for signs of further upgrades to its service, through such measures as purchasing more advanced aircraft or waging a fare-cutting competition.
On July 3, ANA announced a large-scale capital increase as a precautionary measure in anticipation of JAL's relisting on the TSE. ANA plans to use the funds to purchase new airplanes to increase profitability and counter JAL.
ANA President Shinichiro Ito said, "I want the government to make the competition environment just and fair."
A project team of the Liberal Democratic Party asked the government in July to postpone JAL's relisting, as the party believes the airline wrongly made profitability a priority by withdrawing unprofitable regional routes.
The LDP also has criticised JAL's actions, such as injecting capital into a budget carrier and opening new international routes while it was receiving government financial aid.
The government assisted JAL on its assumption that if an airline of such high public interest did not survive, the negative impact on ordinary people would be significant.
The view that the bailout has put ANA and other airlines at a competitive disadvantage highlights the difficulty surrounding the decision to extend government assistance to such companies when they fall into financial straits.
The European Union has a policy of limiting the business activities of companies that receive public funds for support. This option will likely be a future subject of discussion in Japan.