JAL - Japan Airlines (JL, Tokyo Haneda) has confirmed it will indeed pursue a fresh capital increase as it looks to restructure its business and survive the uncertainty of the COVID-19 pandemic. The carrier, which emerged from bankruptcy in 2011, has warned of a net loss of between JPY240-270 billion yen (USD2.322-2.613 billion) for fiscal 2020 given depressed travel demand both within the Japanese market as well as abroad.

The JAL Group subsidiary said it will issue 90,869,900 new common shares of which 60,869,600 shares will be underwritten and purchased by Japanese underwriters in a Japanese Public Offering while 26,087,000 will be underwritten and purchased by international managers in an International Offering to take place in the United States. A further 3,913,000 additionally issued shares may be purchased by international managers should they choose to exercise the option. Following the capital increase, JAL’s outstanding shares will increase from 337,143,500 shares (as of November 6, 2020) to 437,143,500.

JAL expects to net proceeds of JPY167.979 billion yen (USD1.625 billion) via the issuance of which JPY80 billion (USD774.2 million) will go towards its A350 fleet procurement drive (under the guise of CO2 reduction) and to settle outstanding social issues by the end of March 2023. A further JPY15 billion (USD145.16 million) will be used to restructure the firm's business in the post-COVID-19 era by the end of March 2023 while JPY5 billion (USD48.39 million) will be used to meet JAL's social needs in the post-COVID-19 era by the end of March 2023. The remaining proceeds will go towards the repayment of interest-bearing liabilities due by the end of March 2023.

"We intend to apply the net proceeds from the Japanese Public Offering, the International Offering, and the Third-Party Allotment to restructure JAL Group’s business structure in the post-COVID-19 era, enhance safety and security, accelerate initiatives for social issues and rebuild its financial structure by reducing interest-bearing liabilities," the firm said in a stock market filing. "Through these applications, we will develop a robust operating foundation to grow our business in the medium to long term, resolve social issues and actively work to promote non-air transportation business which contributes to strengthening risk tolerance."

Of the JPY15 billion destined for group restructuring efforts, JAL group will use JPY5 billion by the end of March 2023 to meet B787-8 reconfiguration costs for its ZIPAIR Tokyo (ZG, Tokyo Narita) low-cost subsidiary. The other JPY10 billion (USD96.78 million) will be used to fund investments in and loans to Jetstar Japan (GK, Tokyo Narita) (in which JAL holds a 50% interest) and Spring (IJ, Tokyo Narita) (in which JAL holds a minority stake).

"Through the investments in and loans to ZIPAIR Tokyo, Jetstar Japan, and Spring Airlines Japan, we aim to promote management enhancement measures and to strengthen our business alliances, thereby realizing the expansion of the JAL Group’s LCC Business portfolio," it said.

With respect to the repayment of its interest-bearing liabilities, JAL said it plans to repay JPY30 billion (USD290.33 million) in fiscal year 2020 (i.e through March 31, 2021), JPY50 billion (USD483.9 million) in fiscal year 2021 (i.e through March 31, 2022), and JPY50 billion in fiscal year 2022 ((i.e through March 31, 2023) in relation to the redemption of corporate bonds, repayment of bank loans, and the payment of aircraft leases.

"If the business environment improves and we determine that our risk tolerance was enhanced to an extent such that we can stably generate sufficient cash flow from our air transportation business again, we will accelerate the repayment of liabilities, thereby realizing the rebuilding of JAL Group’s financial structure at an early stage," it said.

Japan Airlines is also in the process of securing JPY100 billion (USD968 million) in untapped credit, bringing its total untapped commitment line to JPY300 billion (USD2.9 billion).