JAPAN Airlines owes me something as it plans an $US8.5 billion initial public offering: a thank-you. Not because I’m a frequent flyer, but because I’m a Japan taxpayer.
Nanjing Night Net

In the euphoria over the carrier emerging from bankruptcy, aren’t we forgetting the jumbo-sized role of the state? A $US4.5 billion government-orchestrated bailout and even bigger subsidies that let it avoid billions of dollars in future tax payments.

So, next month, when JAL tries the most ambitious IPO since Facebook, 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, an outfit that actually tries to run itself as a for-profit enterprise.

The airline’s IPO is being held up as a good-news story of rebirth, reformation and fresh opportunities – when it’s anything but.

You can understand the desire for a promising turn-around tale. The past year has been a dismal one for Japan Inc. From Tokyo Electric Power Co’s incompetence, to scandals at Olympus, not to mention Daio Paper, Nomura Holdings and AIJ Investment Advisors, 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 stockmarket 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 last year. 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 embracement of a trend that has long benefited 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 favouritism riddle Japan’s economy. Investors forget that when Japan grows 3 per cent 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 Japan Airlines’ 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 the decision of Prime Minister Yoshihiko Noda to allow the restart of reactors after the disaster, defying the public backlash against nuclear power.

Some day 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 present 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 the Japanese economy more competitive. He has done nothing to increase female participation in the shrinking, male-dominated labour 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 the airline repays the government-backed Enterprise Initiative Turnaround Corp of Japan, which financed the company’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 back-up 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.

BLOOMBERG

This story Administrator ready to work first appeared on Nanjing Night Net.

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