Thursday, April 07, 2016

Sharp Electronics buy belies deficit in Japan's bailout rules

It may be no coincidence that Japan's fair trade watchdog last week released guidelines on state assistance to companies, just a day after the landmark Sharp takeover by Hon Hai Precision Industry, the parent of Foxconn, was announced. While a foreign buyout could not be avoided this time, state-backed funds such as the INCJ are already looking for their next big deal.
The guidelines are aimed at preventing distortions to competition caused by state aid. It comes after criticism that the government bailout of Japan Airlines following its 2010 bankruptcy had unfairly strengthened the carrier compared with ANA Holdings, its main rival.
State assistance to the volatile airline industry is not unique to Japan. It has occurred repeatedly across the world, and some efforts have proven woefully ineffective, as in the case of Alitalia, the struggling Italian flag carrier that is 49 per cent owned by Etihad Airways, the Abu Dhabi-based airline. By contrast, JAL reduced headcount and rationalised its fleet of aircraft, and it has become one of the most profitable carriers in the world, giving the government a significant return on its money.
But critics say Japanese government assistance to JAL — totalling nearly Y1tn ($9bn) through a combination of capital injection, loans and debt waiver — was far too generous and resulted in it becoming far stronger than its rival.

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