JAL, ANA Fundraising Paths Reflect Reform Gap

TOKYO (Nikkei)--Japan Airlines Corp. and All Nippon Airways Co. are set to raise funds using drastically different methods, a divergence that reflects a significant gap in restructuring progress at Japan's two leading carriers.

Last week, the Development Bank of Japan and three megabanks agreed to extend a syndicated loan of 100 billion yen to JAL. In an unusual move, the loan will be partially guaranteed by the government.

After approval was secured, JAL President Haruka Nishimatsu paid a visit to the Ministry of Transport to give thanks for its support in arranging the deal.

In exchange for the government guarantee, however, JAL will be placed under the ministry's supervision. The four banks, for their part, demanded that the company submit a written pledge to heavily restructure its operations.

On the same day the loan accord was reached, ANA said it would raise 150 billion yen through a public offering of new shares. Such a move would leave the firm free of external oversight.

Recent remarks by ANA President Shinichiro Ito and JAL's Nishimatsu reveal the stark differences between the two companies' situations.

"As Narita and Haneda airports will be expanded next year, we decided to spend long-term funds," Ito said.

For his part, when Nishimatsu was asked about his avowed goal of JAL's independent rehabilitation, the president admitted, "It is difficult to define independence."

Now that the financial markets have regained some stability, the corporate fundraising environment has improved. For example, Japanese firms in June issued straight bonds totaling 1.74 trillion yen, an all-time monthly high, as big firms with good ratings like Toyota Motor Corp., Sony Corp. and Honda Motor Co. scrambled to take advantage of cheaper credit.

But a considerable number of companies seem to have been left behind, and are seeking injections of public funds.

Last week, the government decided to provide 140 billion yen to Elpida Memory Inc. Just two years ago, President Yukio Sakamoto had insisted that his firm would not rely on the government.

Under Sakamoto's leadership, Elpida had carried out major investments, and set its sights on becoming one of the world's largest makers of DRAM chips. But then the company fell into a liquidity crunch following the collapse of Lehman Brothers Holdings Inc. last fall.

JAL has also been hit hard by the global financial crisis. Unlike Elpida, however, JAL was in dire straits even before the crisis accelerated last fall.

When Nishimatsu assumed the JAL presidency in 2006, he inherited his predecessor's negative legacy, including operational woes and a running feud among management.

In a bid to improve the firm's weakened financial base, Nishimatsu arranged for a public offering of new stock. Fearing that shareholders would oppose the issuance, JAL announced it after a general shareholders meeting. This move was widely criticized, and the company failed to raise the planned amount of funds.

In contrast, ANA's restructuring has featured the replacement of old aircraft with new, fuel-efficient models, and the selling of hotel operations in order to focus resources on the core business. This turnaround effort, led by current Vice Chairman Mineo Yamamoto, who resigned from the presidency at the end of March, has helped improved market perceptions of the firm.

JAL has also implemented cost-cutting measures. But given the gap in progress between the two carriers, they now find themselves on different fundraising paths.

Meanwhile, President Ito of ANA has revealed that JAL rejected ANA's proposal to jointly call for the government to cut the relatively high fuel tax and airport landing fees. Such reductions would have saved the firms tens of billions of yen.

JAL started out as a nationally supported airline, and thus may be expecting restructuring to bring the reward of additional government aid -- rather than increased independent fundraising opportunities, which are in fact vital for any company.

--Translated from an article by senior Nikkei staff writer Atsushi Nakayama

(The Nikkei July 6 morning edition)