Japan Airlines Shares Fall Most Ever After New Share Sale Unveiled

(Bloomberg) -- Japan Airlines Co. fell the most on record after saying it will raise as much as 168 billion yen ($1.6 billion) by selling new shares to support its finances during the coronavirus crisis.

The shares dropped over 15% in early trading Monday, the steepest decline on record. They were down 11% at 2:12 p.m. in Tokyo. The stock has plunged more than 50% this year.

“Much is still unclear” about the airline’s plans, said Kotaro Toriumi, an independent analyst. The company hasn’t said when it aims to return to the black and “will need to clarify how much it will cut labor costs,” including bonuses, he said.

Japan Airlines, which is seeking to weather the pandemic without any job cuts, will use the proceeds to repay debt and invest in a restructuring plan for the post-pandemic era, it said in a statement Friday. As part of the plan, Japan Airlines will bolster the low-cost carrier business and buy Airbus A350s, which are more fuel-efficient than older aircraft.

The coronavirus has crippled global aviation, with total industry revenue in 2021 expected to plunge by nearly a half from $838 billion last year, according to the International Air Transport Association. Japan Airlines and ANA Holdings Inc., Japan’s largest carrier, are suffering from a steep drop in domestic and international passenger traffic.

Japan Airlines will issue as many as 100 million new shares, about a third of its current shares outstanding. The equity fundraising will be positive for its credit, said Toshiyasu Ohashi, chief credit analyst at Daiwa Securities.

Japan Airlines will sell 30% of the shares overseas and the rest domestically, and it will offer them at a 3% to 6% discount. The issue price will be determined as early as Nov. 18.

“The market was not expecting the share sale and resulting steep dilution at this point in time, since JAL still had sufficient liquidity,” said James Teo, an analyst at Bloomberg Intelligence.

While Japan Airlines said it would cut capital expenditure including aircraft spending, it plans to use a large part of the proceeds for the A350 fleet, which could be another reason for the negative market reaction, Teo said. “Widebody aircraft are meant for international routes that might remain depressed in a post-Covid era,” he said.

Japan Airlines last month forecast a net loss of 240 billion to 270 billion yen for the fiscal year through March, falling into the red for the first time since emerging from bankruptcy in 2012.

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