Skymark Airlines [BC/SKY] has reportedly decided to file for bankruptcy protection with the Tokyo District Court, after an emergency board meeting was held on the night of January 28th. Investment fund Integral Corporation has been named by officials close to the matter, which will finance and help Japan's third largest carrier continue operations as normal. This becomes the second airline bankruptcy in Japan in five years, after Japan Airlines [JL/JAL] sought for bankruptcy protection in 2010.
Charismatic and hands-on President and CEO Shinichi Nishikubo, who is also the airline's biggest shareholder controlling over 30%, is expected to step down. Managing Director Masakazu Arimori will assume leadership. Total debt is estimated to amount to over 100 billion JPY, including the 700 million USD in penalties Airbus is seeking for the cancellation of the Airbus A380 order (Skymark hopes to settle Airbus A380 penalty in October.).
Although predicting a 354 million JPY net profit for FY2014 only a year ago, its financial health quickly deteriorated from increased costs due to the introduction of the Airbus A330s (Skymark Airlines inaugurates Airbus A330 service.) and now-canceled A380s, continued depreciation of the JPY, high fuel costs (until a few months ago), and intensified competition with the LCCs as well as full-service carriers, which have become more aggressive.
The cash-strapped airline burned 2.5 billion JPY in cash reserves just in the six months to September 2014, bringing down the total on hand to 4.5 billion JPY, but after then they were probably bleeding at an even faster rate. Skymark's continued negative media coverage has apparently kept passengers from choosing to fly with them. They also enjoy no loyalty program, which was planned but shelved and is now considered one of their biggest mistakes in a country where brand affinity counts significantly. Its predicted record loss for FY2014 (Skymark braces for 13.7 billion JPY loss in FY2014.) is expected to be even greater.
A number of aircraft lessors as well as airlines are reportedly already showing interest in sponsoring Skymark's restructuring. Intrepid Aviation, which owns five of Skymark's six A330s (the other is owned by CIT Aerospace), as well as AWAS, GECAS, among others, along with Airbus are the biggest creditors, which probably will have a say in the decision. However, concerning financial assistance from airlines, unless the controversial 8.10 Paper, which prohibits JAL from making any new investments until FY2017, is reviewed, All Nippon Airways [NH/ANA] is virtually the only carrier able to give a hand.
Mr. Nishikubo had said an investment from ANA would be the last thing they would be looking into, however, their reported consideration of it (Running out of time: Will Skymark join ANA?) and rejection probably illustrated their dire financial health. A dual partnership with ANA and JAL (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.) was being orchestrated by Japan's Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) after the regulator was hesitant to accept Skymark's tie-up with JAL (Skymark in talks with JAL for broad tie-up.) and tried to keep Skymark afloat as Japan's third force and the last child of deregulation that remains independent.
Skymark currently operates 23 non-stop routes covering only domestic destinations using a fleet of five A330-300s and 27 Boeing 737-800s, and employs approximately 2,200 staff. Its 3Q FY2014 results will be released tomorrow on January 29th.
But the biggest question remains; how will they restructure?
Source: Nikkei Shimbun, January 28th. (in Japanese)
*Edited/updated on February 12th.
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| Boeing 737-86N(WL) JA737R thunders out of Tokyo International Airport at Haneda, where Skymark controls 36 slot-pairs. This aircraft is leased from Avolon Aerospace. (Photo: Ryosuke Yano) |
Charismatic and hands-on President and CEO Shinichi Nishikubo, who is also the airline's biggest shareholder controlling over 30%, is expected to step down. Managing Director Masakazu Arimori will assume leadership. Total debt is estimated to amount to over 100 billion JPY, including the 700 million USD in penalties Airbus is seeking for the cancellation of the Airbus A380 order (Skymark hopes to settle Airbus A380 penalty in October.).
Although predicting a 354 million JPY net profit for FY2014 only a year ago, its financial health quickly deteriorated from increased costs due to the introduction of the Airbus A330s (Skymark Airlines inaugurates Airbus A330 service.) and now-canceled A380s, continued depreciation of the JPY, high fuel costs (until a few months ago), and intensified competition with the LCCs as well as full-service carriers, which have become more aggressive.
The cash-strapped airline burned 2.5 billion JPY in cash reserves just in the six months to September 2014, bringing down the total on hand to 4.5 billion JPY, but after then they were probably bleeding at an even faster rate. Skymark's continued negative media coverage has apparently kept passengers from choosing to fly with them. They also enjoy no loyalty program, which was planned but shelved and is now considered one of their biggest mistakes in a country where brand affinity counts significantly. Its predicted record loss for FY2014 (Skymark braces for 13.7 billion JPY loss in FY2014.) is expected to be even greater.
A number of aircraft lessors as well as airlines are reportedly already showing interest in sponsoring Skymark's restructuring. Intrepid Aviation, which owns five of Skymark's six A330s (the other is owned by CIT Aerospace), as well as AWAS, GECAS, among others, along with Airbus are the biggest creditors, which probably will have a say in the decision. However, concerning financial assistance from airlines, unless the controversial 8.10 Paper, which prohibits JAL from making any new investments until FY2017, is reviewed, All Nippon Airways [NH/ANA] is virtually the only carrier able to give a hand.
Mr. Nishikubo had said an investment from ANA would be the last thing they would be looking into, however, their reported consideration of it (Running out of time: Will Skymark join ANA?) and rejection probably illustrated their dire financial health. A dual partnership with ANA and JAL (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.) was being orchestrated by Japan's Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) after the regulator was hesitant to accept Skymark's tie-up with JAL (Skymark in talks with JAL for broad tie-up.) and tried to keep Skymark afloat as Japan's third force and the last child of deregulation that remains independent.
Skymark currently operates 23 non-stop routes covering only domestic destinations using a fleet of five A330-300s and 27 Boeing 737-800s, and employs approximately 2,200 staff. Its 3Q FY2014 results will be released tomorrow on January 29th.
But the biggest question remains; how will they restructure?
Source: Nikkei Shimbun, January 28th. (in Japanese)
*Edited/updated on February 12th.
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