Japan Airlines Co. said Friday it will raise ¥167.9 billion via a public stock offering this year to help the firm survive the harsh business environment amid the coronavirus pandemic and cover replacement costs for its fleet.
The airline’s first capital increase since its relisting in 2012 comes as the industry struggles amid a slump in air travel due to the pandemic. JAL has a stronger financial foundation than some of its peers, such as ANA Holdings Inc., but still expects to post a record net loss for the current business year through March.
JAL will sell about 91 million new shares to general shareholders and 9 million new shares to a designated party under a third-party allotment program. A total of ¥100 billion will be spent to buy fuel-efficient flight equipment and support low-cost carriers under its wing. The rest will be mainly used to reduce interest-bearing debt.
JAL plans to spend some of the raised funds to replace Boeing 777s with more fuel efficient Airbus 350s. It will also help budget airline subsidiaries Zipair Tokyo Inc. and Jetstar Japan Co. bolster their businesses.
As the pandemic has reduced air travel demand, particularly for international flights, JAL expects to post a net loss of ¥240 billion to ¥270 billion in fiscal 2020, in what would be its first red ink since relisting on the Tokyo bourse in 2012.
When JAL went bankrupt in 2010, it received debt waivers from financial institutions and an injection of public funds, paving the way for the airline to develop a stronger capital adequacy ratio, the gauge of financial health, than ANA.
ANA is also struggling to ride out the pandemic. It is expecting a record net loss of ¥510 billion for the current business year through March. The parent company of All Nippon Airways Co. last month secured ¥400 billion in subordinated loans from major Japanese banks, including the state-affiliated Development Bank of Japan. Star Flyer is also considering raising fresh capital.
A senior JAL official did not rule out the possibility of taking out subordinated loans, which have a lower repayment priority than other loans and can largely be treated as capital.
“We will consider various options. We will do so in a flexible manner,” the official told an online news briefing.
The proceeds will be used for structural reforms for the post-coronavirus era.
“We’ll take action to improve our financial health quickly and head for growth after the coronavirus epidemic,” said Yuichiro Kito, general manager of JAL’s finance department.
Following the capital boost, the number of JAL’s outstanding shares will increase to some 437 million from 337 million.
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