Japan Airlines holds second biggest IPO, but institutions stay away due to bankruptcy memories

It is not all saccharine at Japan Airlines (JAL) as it is poised to raise USD8.5 billion in the second largest initial public offering of the year after Facebook. While the amount is outstanding for an airline and comes in the midst of much of the world being in the economic doldrums, the source of that amount indicates remaining contention from JAL's time in bankruptcy.

The majority of shares are being taken up by individual investors, who as part of their stake-holding receive discounts on JAL's notoriously expensive airfares. The absence of institutional investors reflects in part the resentment many still hold for JAL's previously-unthinkable entry into bankruptcy, wiping out the carrier's value. Some institutions also wonder if JAL really has dropped its inefficient ways or if costs will creep in once the bankruptcy turnaround management depart.

Looking to the future also raises questions whether JAL - and competitor All Nippon Airways (ANA) - can maintain its remarkable turnaround performance and adapt to the fundamental shift occurring in short-haul markets as home grown and foreign LCCs gain prominence.