Wednesday, April 22, 2015

Skymark gives in to ANA; Japan reverts to duopoly.

On April 22nd, Skymark Airlines [BC/SKY], Integral Corporation, and ANA Holdings jointly held a press conference at Japan's Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) announcing that an agreement had been reached with the private equity firm and the parent of All Nippon Airways [NH/ANA] to rebuild Japan's bankrupt third largest carrier (Skymark to file for bankruptcy.). It marks the bitter end of a fare war sparked by Skymark against the ANA/JAL duopoly. Founded in 1996, they were Japan's first child of deregulation and also the last to remain independent (Skymark accedes to ANA investment.).

Flying with Skymark until April 2009, Boeing 767-38E/ER JA767F now operates for Jetairfly as OO-JAP. Japan's first child of deregulation launched flights in September 1998 with a pair of 767s which grew to six at peak, but eventually moved to an all-737 fleet in September 2009. (Photo: Ryosuke Yano)

A total of 18 billion JPY will be injected into the cash-strapped airline. After performing a 100% capital reduction, a debt-equity swap will leave Integral controlling 50.1% and ANA Holdings 19.9%, with the remainder to be held by financial institutions that have a close relationship with ANA, including Development Bank of Japan and Sumitomo Mitsui Banking. The entire management including current Chairman Takashi Ide and President Masakazu Arimori would then be replaced. Six members will sit on the board, with three to be appointed by Integral and one by ANA, and the remaining two by ANA's partner banks. Its president will be selected by ANA, while the chairman will be chosen by Integral. All jobs will be retained, and ANA and Integral have agreed to re-list Skymark within five years.

Details of the new partnership and corporate rehabilitation plan, which need to be submitted to the Tokyo District Court by May 29th, will now be worked on. It has between today and May 8th to negotiate with creditors to reduce its 316 billion JPY debt (Skymark's total debts skyrocket to 300 billion JPY.), including 700 million USD (84 billion JPY) from Airbus for the A380 cancellation (Skymark hopes to settle Airbus A380 penalty in October.) and 900 million USD (108 billion JPY) from Intrepid Aviation for scrapping A330 leases (Skymark terminates all Airbus A330 leases.). A brand revamp is also being considered (Skymark hints at new brand: SKY bee?). ANA's original proposal called for Skymark to reduce its fleet to 20 aircraft, implement extensive code-sharing, joint ticket sales, joint fuel purchases, joint crew training, and align its network to complement that of ANA's, virtually transforming them into a feeder carrier, replicating how it controls AIRDO [HD/ADO] (d.b.a. Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ] through minority investments and sending in executives from ANA.

Boeing 787-8 JA816A rotates from Haneda. ANA and its affiliates now dominate 60% of the highly-coveted slots at the downtown Tokyo airport, including the 36 slot-pairs allocated to Skymark. Domestic routes still contribute to almost 70% of the largest Japanese carrier's revenue. (Photo: Ryosuke Yano)

However, all may not go in protectionist ANA's favor, as the agreement is fragile with conflicting interests and differences yet to be solved. Japan's biggest airline together with its partner banks initially demanded a 80% stake in Skymark to keep it under its influence once and for all and leave genuine domestic competition out of bread-and-butter Tokyo/Haneda [HND/RJTT] for as long as possible. But the idea was vehemently opposed by Integral, which wants to rebuild Skymark as an independent carrier. Regulator MLIT has also said it would limit any ANA investment in Skymark to five years to prevent a return to the ANA/JAL duopoly era at Tokyo/Haneda [HND/RJTT], though this may be invalidated by the governing Liberal Democratic Party (LDP), with which ANA enjoys a cozy relationship.

In any case, now all of Japan's mainline carriers are affiliated with either ANA or Japan Airlines [JL/JAL]. Air Do, Skymark, Solaseed Air, and Star Flyer along with LCCs Peach Aviation [MM/APJ] and Vanilla Air [JW/VNL] are all in the ANA flock, while Fuji Dream Airlines [JH/FDA], Japan Transocean Air [NU/JTA], and Jetstar Japan [GK/JJP] have JAL influence, leaving tiny and still highly-unprofitable LCC Spring Airlines Japan [IJ/SJO] as the only non-ANA/JAL carrier, though AirAsia Japan (Mk II) is preparing to challenge the duopoly next year (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.). For Haneda, JAL holds 40% of domestic slot-pairs (184.5) and ANA 37.4% (172.5), however, when the slots of de facto subsidiaries Air Do, Skymark, Solaseed Air, and Star Flyer are combined, that figure jumps to a whopping 60%.

Source: Nikkei Shimbun, April 22nd. (in Japanese)
Source: Skymark Airlines, April 22nd. (in Japanese)

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