An $8.5 Billion IPO Looks Like the Next Facebook
Japan Airlines Co. owes me something as it plans an $8.5 billion initial public offering: a thank you. Not because I’m a frequent flier, but a Japan taxpayer.
In the euphoria over the carrier emerging from bankruptcy, aren’t we forgetting the jumbo-jet-sized role of the state? A $4.5 billion government-orchestrated bailout and even bigger subsidies that let it avoid billions of dollars in future tax payments.
So next month, when JAL attempts the most ambitious IPO since Facebook Inc. (FB), it should do so with humility and full knowledge of how its trajectory is another blow to Japan’s status as a meritocratic economy. The goodies JAL is using to resurface as a public company are weighing on rival All Nippon Airways Co., an outfit that actually tries to run itself as a for-profit enterprise.
JAL’s IPO is being held up as a good-news story of rebirth, reform and fresh opportunities -- when it’s anything but. You can understand the desire for a promising turnaround tale. The past year has been a dismal one for Japan Inc. From Tokyo Electric Power Co.’s incompetence to scandals at Olympus Corp., not to mention Daio Paper Corp., Nomura Holdings Inc. and AIJ Investment Advisors Co., examples of weak corporate governance abound. It’s only in contrast to this wreckage that JAL can look like a success story.
In reality, the public coddling JAL enjoys as it returns to the stock market is emblematic of so much of what ails Japan. All Nippon rebounded to profit in the first quarter as air traffic recovered from disruptions caused by the Japanese tsunami and nuclear crisis of March 2011. The airline succeeded on its own in a turbulent global environment, not because of a government lifeline.
Now, All Nippon’s outlook is in jeopardy. JAL’s unfair, taxpayer-supported leg up on All Nippon will inhibit competition and further delay the creation of a viable budget-airline industry. JAL hasn’t come up with a low-cost carrier strategy, and its advantage will slow All Nippon’s full embrace of a trend that has long benefitted consumers in Europe, America and other parts of Asia. Japan’s “budget” carriers are cheap in name only.
The unseen costs of publicly financed corporate favoritism riddle Japan’s economy. Investors forget that when Japan grows 3 percent a year it’s only because of an endless cycle of fiscal stimulus, deficit spending and zero interest rates, which have distorted the nation’s credit system. If JAL’s IPO is a roaring success, few will pause to consider the artificial stimulants that make it so.
Such cosseting of national champions doesn’t get the attention it deserves. The post-tsunami nuclear crisis that almost caused the evacuation of Tokyo was a direct result of Tepco’s incompetence and the company’s government enablers. Decades of lax safety policies were ignored by bureaucrats looking for cushy post-retirement gigs in the power industry. Tepco’s pervasive influence explains Prime Minister Yoshihiko Noda’s decision to allow the restart of reactors closed after the March 2011 disaster, defying the public backlash against nuclear power.
Someday Japan will have a finance minister with the courage to tell companies to stop bellyaching about the strong currency and learn to adapt the way the Germans did. The current occupant of that position, Jun Azumi, isn’t that man. He should spend less time threatening to intervene in markets and more working to make Japan more competitive.
Ways to Thrive
Azumi hasn’t devised ways for Japan to thrive without massive borrowing or free money. He has spent little time figuring out how Japan will flourish as the population ages, save for championing a doubling of the 5 percent consumption tax. He has done nothing to increase female participation in the shrinking, male-dominated labor force.
To its credit, JAL has done some heavy lifting since its 2010 bankruptcy. It slashed thousands of jobs, cut debt and retired older, less fuel-efficient aircraft. But at what price? Its bankruptcy wiped out shareholders. And even if JAL repays the government-backed Enterprise Initiative Turnaround Corp. of Japan, which financed the airline’s bailout, Japan will still be giving away untold billions of dollars in tax breaks.
Nor is it clear that JAL has learned the right lessons after at least four bailouts in the past decade. Knowledge that the government is always at the ready as a backup removes the urgency to make the wrenching, but needed, reforms. Thanks to the latest rescue, consumers and businesses will continue overpaying for flights and have fewer scheduling options.
The other question is whether the market will give JAL the Facebook treatment. The social-networking company and JAL share something in common in the hype department. Facebook’s buyers bought into the mania and have regretted it ever since as the shares slide. JAL’s supporters, rather than trying to ride the next big thing, will be domestic retail investors desperate for a feel-good business story.
If JAL really is a happy tale, it will probably end once its executives hit up taxpayers for another handout.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)
Today's highlights: the editors on how the private sector can help reduce unemployment and on why a carbon tax still makes sense; Clive Crook on Paul Ryan and America's bad marriage; William Dudley on why money-market funds should restrict redemptions by investors; Adam Kirsch on the Tea Party and the novel "Burr."
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