News Backgrounder
More Skymark dramas
July 1st 2015
In a highly unusual move, a Tokyo court supervising bankruptcy proceedings has ruled that creditors of bankrupt domestic carrier, Skymark Airlines, must decide between two proposed rehabilitation plans. The deadline for the decision is August 5. Read More »
In Japan, it is usual for only one rehabilitation scheme to be submitted to the court in bankruptcy proceedings, but like so much else about Skymark, the situation varies from the norm.
Creditors can chose between a Japan backed plan put together by Skymark and three other Japanese partners or the rescue package assembled by major U.S. leasing company, Intrepid Aviation.
Before its entry into bankruptcy protection in January, Skymark was a “third force” in the Japanese domestic airline market, challenging the duopoly of Japan Airlines (JAL) and All Nippon Airways (ANA). The two big carriers command almost 80% of the market, the third biggest in the world.
The carrier came to grief after former president, Shinichi Nishikubo, recklessly over-stretched the airline when he ordered six A380s for long haul services, configured with 114 business class and 280 premium economy seats, respectively.
Additionally, enigmatic Nishikubo introduced leased A330 aircraft on domestic trunk routes, in the hope he could capture the high-yield business market from JAL and ANA. The A330s were configured in premium economy class with 271 seats that were more spacious and cheaper than those of key competitors.
Unable to maintain the payment schedule for the A380s and failing to attract enough passengers for the A330s, Skymark moved into loss. Airbus cancelled the A380 contract and sought compensation. Skymark grounded the A330s, leased from Intrepid.
Claims from Airbus amount to 88 billion yen and Intrepid wants 115 billion yen in compensation. Together, the two foreign companies are demanding 65% of all claims against Skymark.
Skymark’s three partners are finance company Integral (50.1%), UDS Investments, a joint venture between the Development Bank of Japan and the Sumitomo Mitsui Banking Corporation (33.4%) and ANA Holdings, parent company of ANA (16.5%)
Intrepid originally had the impression that ANA was interested in introducing the Skymark A330s, now sitting on the ground at Tokyo’s Haneda Airport, into its fleet, but it was not the case.
ANA executive, Toyoyuki Nagamine, said in June the airline was “not going to acquire a new aircraft just because we have become Skymark’s sponsor”.
ANA hopes to cooperate with the airline by joining in code share flights, making use of Skymark’s Haneda slots.
JAL, itself recently rehabilitated, was approached by Skymark late last year and was willing to help with code share flights and other cooperation, but was prevented from making the investment because of restraints placed on it by the Ministry of Transport.
At press time, Intrepid’s invitation for Delta Air Lines to join its rehabilitation plan had received no official response. Delta, a member of the SkyTeam alliance, has no Japanese partner, whereas its rival, American Airlines, is a member of oneworld, like JAL, and United Airlines and ANA are Star Alliance members.
Finding buyers for the A380s and the A330s is a tough call, especially because Skymark’s configuration of its cabin interiors. As yet, there is no aftermarket for the A380 and Skymark’s A330s would need to be modified, an extra cost, to appeal to prospective clients.
To be accepted by the courts, the winning plan should be supported by at least 50% of the creditors by debt value and by 50% of creditors by number. That would appear to put Airbus and Intrepid at the head of the queue, if they work together. Intrepid is the biggest single creditor, with about 37% of the debt.
Unsurprisingly, Skymark argued the true debt owed to Airbus and Intrepid is much lower than has been stated to date.
At the Paris Air Show, Airbus CEO, Fabrice Bregier, said the French manufacturer was studying the two proposals to revive Skymark and would favour any plan that gives the bankrupt Japanese airline a future and also considers Airbus’ interests. Analysis of the plans would be “complex”, he said.
