Tuesday, July 7, 2015

ANA/Skymark and Intrepid battle for creditors' votes.

On July 7th, bankrupt Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) and ANA Holdings, parent of All Nippon Airways [NH/ANA], jointly held a closed meeting for creditors to persuade them to endorse the ANA-backed rehabilitation plan (Skymark gives in to ANA; Japan reverts to duopoly.) on August 5th, when the voting will take place. On June 15th, the Tokyo District Court approved both the ANA-sponsored proposal and the rival plan submitted by creditor Intrepid Aviation which does not involve Japan's largest airline (Skymark/ANA and Intrepid both given go-ahead by court.).

Boeing 737-82Y(WL) JA737Z arrives at Haneda, where Skymark controls 36 lucrative slot-pairs. Adding Skymark to ANA's portfolio of de facto puppets Air Do, Solaseed Air, and Star Flyer would have them control a dominant 60% of domestic slots at Haneda. With the remaining 40% controlled by JAL, it would effectively bring back duopoly to Japan's most important airport, virtually wiping out competition. (Photo: Ryosuke Yano)

Both proposals call for a 18 billion JPY injection, however, the ANA/Skymark scheme proposes Integral Corporation to contribute 50.1%, UDS Airlines Investment 33.4%, and ANA Holdings 16.5%, while the Intrepid plan would have Integral pay the entire 100% and the unnamed non-Japanese airline partner would assist through a non-investment sponsorship. This would avoid any political obstacles, as the government is still uncomfortable about foreign ownership of domestic airlines holding Tokyo/Haneda [HND/RJTT] slots. Meanwhile, UDS is jointly owned by ANA's long-time partner financial firms Development Bank of Japan and Sumitomo Mitsui Banking, so the ANA/Skymark proposal translates to ANA virtually controlling 49.1%.

Nobuo Sayama, President of investment firm Integral Corporation, and Toyoyuki Nagamine, Senior Executive Officer of ANA, reportedly reiterated the details and called for creditors' support, criticizing the rival proposal submitted by creditor Intrepid (Skymark and Intrepid submit rivaling revival plans.) as being unrealistic, having not decided on an airline sponsor as of yet. Asked by creditors whether the embattled carrier would lose its role as Japan's third force through an ANA sponsorship, Mr. Nagamine responded "Skymark will decide fares, routes, and frequencies on their own, so their independence is assured. I don't think an overseas carrier can provide the quality of support ANA can." However, Mr. Sayama said "We made a binding agreement with ANA, so we must execute that," adding "I hope what is selected is best for Skymark." Integral and Skymark were initially vehemently against ANA sponsorship, so the truth may be that they are hoping for the Intrepid plan to go through.

Intrepid will also hold a similar meeting on July 15th to convince creditors that its proposal without ANA involvement would keep Skymark as the third force fully independent from the incumbents. It is also boasting the likelihood of a higher repayment rate, as the yet-to-be-named airline sponsor would take Skymark's displaced Airbus A330s (Skymark terminates all Airbus A330 leases.), which would greatly reduce the debt they owe Intrepid. Although Delta Air Lines [DL/DAL] has so far been the only disclosed candidate, the aircraft leasing firm says it has narrowed down the number of potential sponsors to two, saying they are (1) premier international carriers, (2) established in the Japan market, and (3) committed to Skymark's independence and growth as Japan's third force. Is it AirAsia [AK/AXM] (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.) and Delta? Will Intrepid reveal the sponsor on July 15th?

Attending the ANA/Skymark meeting were 134 representatives from 80 creditors, from a total of 197. At the August 5th creditors' vote, a proposal is required to win approval of a majority of debt holders, both in terms of the proportion of liabilities and the number of creditors. With Intrepid, Airbus (Skymark's Airbus A380 order in jeopardy.), Rolls-Royce, and CIT Aerospace claiming approximately 38%, 29%, 16%, and 14% of Skymark's debt, respectively (Skymark's total debts skyrocket to 300 billion JPY.), the decision of the second, third, and fourth largest creditors is crucial. However, it is unlikely the three will reveal its preference until the last minute to let the two plans compete and squeeze out the best deal (repayment rate) possible. If neither proposal garners enough tallies to meet the requirement, another vote will be held within two months.

Source: Jiji Press, July 7th. (in Japanese)
Source: NHK, July 7th. (in Japanese)
Source: Nikkei Shimbun, July 7th. (in Japanese)
Source: Aviation Wire, July 7th. (in Japanese)

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