On July 31st, Skymark Airlines (BC/SKY) posted a staggering 5.7 billion JPY net loss for just the first quarter of FY2014. It posted an annual 1.8 billion JPY net loss for FY2013. Total revenue was 18.2 billion JPY, down 1.5% from the same period last year, while its operating loss was 5.5 billion JPY (2.5 billion JPY loss for 1Q FY2013) and ordinary loss was 5.4 billion JPY (1.2 billion JPY loss for 1Q FY2013). Aircraft acquisition expenses increased 25.4%, and coupled with crew training costs, spare parts acquisitions, higher fuel bills, its total cost rose 14.0% to 22.9 billion JPY.
Meanwhile, on July 29th, Airbus unilaterally canceled Skymark's order for six A380s (Skymark's Airbus A380 order in jeopardy.) over concerns of the airline's ability to make payments. The European manufacturer said they were "reserving all its rights and remedies," implying a legal action ahead. According to sources, Airbus is seeking around 70 billion JPY, in addition to pre-deposits amounting to 26.5 billion JPY, which is unlikely to be refunded. "There's no rationality behind the figure. We're considering all measures, including bringing the case to court," said President and CEO Shinichi Nishikubo. As of June, Skymark's cash and near-term assets stood at 7.2 billion JPY. Together with increased losses, should Skymark be obliged to pay a huge penalty, the airline would be at risk of going out of business.
The bitter relationship with the planemaker "will have no affect on future A330 deliveries," the airline says, as all are being leased from Intrepid Aviation. Skymark said they will embark on reorganizing; increase utilization of the A330 (Skymark Airlines inaugurates Airbus A330 service.), lure more passengers by offering a premium product at attractive prices, suspend unprofitable routes, and receive financing from banks. Until now, Japan's third largest airline had made themselves proud by never borrowing cash, but ironically, due to that they don't have any rapport with financial institutions, and many doubt how much support they can get with their shares plummeting 32% after the A380 cancellation and the case with Airbus not yet settled.
A darling of the industry only one year ago is now seeing a nightmare; but not uncommon in the airline industry. They are now rated as "(there is) material uncertainty over whether the company will remain a going concern." Mr. Nishikubo admits "In some aspects, I think we were too optimistic." I certainly do hope they can survive, but in any case they would have to make painful decisions and their independence is certainly in doubt. However, with the A330s on-line, it's also true that they have a superior product at a much affordable cost than its rivals. If I may put my two cents in, what Skymark is missing but can fill is a frequent-flyer program, which was planned but postponed. But obviously only that would be far from enough... now who will come to the rescue?
Reference: Aviation Wire, July 31st. (in Japanese)
Reference: Japan Times, August 1st. (in English)
*Edited/updated on August 3rd, 2014.
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| Airbus A380-841 F-WWSL/JA380A taxies at Toulouse. Together with heavy losses, penalties for the cancellation are threatening the long-term viability of Japan's first child of deregulation. (Photo: Airbus) |
Meanwhile, on July 29th, Airbus unilaterally canceled Skymark's order for six A380s (Skymark's Airbus A380 order in jeopardy.) over concerns of the airline's ability to make payments. The European manufacturer said they were "reserving all its rights and remedies," implying a legal action ahead. According to sources, Airbus is seeking around 70 billion JPY, in addition to pre-deposits amounting to 26.5 billion JPY, which is unlikely to be refunded. "There's no rationality behind the figure. We're considering all measures, including bringing the case to court," said President and CEO Shinichi Nishikubo. As of June, Skymark's cash and near-term assets stood at 7.2 billion JPY. Together with increased losses, should Skymark be obliged to pay a huge penalty, the airline would be at risk of going out of business.
The bitter relationship with the planemaker "will have no affect on future A330 deliveries," the airline says, as all are being leased from Intrepid Aviation. Skymark said they will embark on reorganizing; increase utilization of the A330 (Skymark Airlines inaugurates Airbus A330 service.), lure more passengers by offering a premium product at attractive prices, suspend unprofitable routes, and receive financing from banks. Until now, Japan's third largest airline had made themselves proud by never borrowing cash, but ironically, due to that they don't have any rapport with financial institutions, and many doubt how much support they can get with their shares plummeting 32% after the A380 cancellation and the case with Airbus not yet settled.
A darling of the industry only one year ago is now seeing a nightmare; but not uncommon in the airline industry. They are now rated as "(there is) material uncertainty over whether the company will remain a going concern." Mr. Nishikubo admits "In some aspects, I think we were too optimistic." I certainly do hope they can survive, but in any case they would have to make painful decisions and their independence is certainly in doubt. However, with the A330s on-line, it's also true that they have a superior product at a much affordable cost than its rivals. If I may put my two cents in, what Skymark is missing but can fill is a frequent-flyer program, which was planned but postponed. But obviously only that would be far from enough... now who will come to the rescue?
Reference: Aviation Wire, July 31st. (in Japanese)
Reference: Japan Times, August 1st. (in English)
*Edited/updated on August 3rd, 2014.
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