On July 15th, Intrepid Aviation, Skymark Airlines' [BC/SKY] largest creditor (Skymark to file for bankruptcy.), announced that they had selected Delta Air Lines [DL/DAL] to sponsor Japan's bankrupt third largest airline in the leasing company's own rehabilitation proposal (Skymark and Intrepid submit rivaling revival plans.), challenging the scheme submitted jointly by ANA Holdings, parent of All Nippon Airways [NH/ANA], and Skymark (Skymark gives in to ANA; Japan reverts to duopoly.). 133 representatives from 81 creditors attended the press conference. The 197 debt holders will vote which plan to endorse (ANA/Skymark and Intrepid battle for creditors' votes.) either at the creditors' meeting on August 5th, or by paper that would need to be submitted by July 24th.
Although Intrepid's initial plan called for the entire 18 billion JPY cash injection to be made by Integral Corporation, the updated scheme calls for an investment by Delta that would be no larger than 20%. The maximum share foreign carriers can own in Japanese airlines is 33.3% based on voting rights, however, an ownership change exceeding 20% would require Skymark to relinquish all of their 36 slot-pairs at Tokyo/Haneda [HND/RJTT]. Delta's Managing Director for Japan Masaru Morimoto said "We can assist them in revamping their reservations system (to enable code-shares) and frequent flyer services (Skymark has none), and enhancing the passenger experience. Revenue management is also something we can help."
Delta has been disadvantaged in the Japan – U.S. market against rivals American Airlines [AA/AAL] and United Airlines [UA/UAL], which enjoy joint-ventures (JVs) with Japan Airlines [JL/JAL] in Oneworld and ANA in Star Alliance, respectively. It furiously went after JAL when the flag carrier went bankrupt in 2010 and talks have been held with Skymark on various occasions. Delta currently does have a frequent flyer partnership with Skymark, though very limited, where its domestic flights are available for redemption through SkyMiles. Network-wise, there are little synergies, as Delta's biggest presence in Japan is at Tokyo/Narita [NRT/RJAA], which was completely dropped by Skymark last October (Skymark announces Narita closure and Yonago cuts.). Skymark's main focus is at Haneda, where Delta will soon only have a single late-night flight to Los Angeles [LAX/KLAX], which is not timed for connections. The Seattle-Tacoma [SEA/KSEA] slot-pair is being forfeited.
However, nine daytime international slot-pairs thought to be for U.S. services remain unallocated at Haneda due to disagreements between the authorities, and Delta may have that in mind. It has long been rumored that Delta is the main lobbying power that is blocking the allocation of these precious slots, as the new flights would allow international – domestic connections, fully taking advantage of the JVs at ANA/United and JAL/American. Without a Japanese partner, Delta would be at a disadvantage. Meanwhile, Delta is also in advanced talks with SkyTeam partner Korean Air [KE/KAL] for a deeper partnership if not a JV, and it is unsure what effect the Atlanta-based carrier's involvement in Skymark would have on the discussions. In the long run, Japan is a shrinking market and the bigger focus is on China, evidenced by U.S. carriers adding more nonstop flights to the most populous nation, overflying the land of the rising sun.
Provided Intrepid's proposal goes through at the August 5th meeting and Japanese regulators accept Delta's involvement, the U.S.-based aircraft leasing firm would voluntarily withdraw 30 billion JPY out of a demand that Skymark pay 115 billion JPY to the lessor for scrapping leases on seven Airbus A330s (Skymark terminates all Airbus A330 leases.). Intrepid says that would free at least 1.5 billion JPY to be repaid back to the creditors, bringing the repayment rate up to 5.5%, which is more than that figure of the ANA/Skymark plan. Talks are still continuing regarding Delta taking up the seven displaced A330s, but if that bears fruit, it would significantly reduce Skymark's debt, 38% of which is accounted for by Intrepid, further pushing up the repayment rate.
"We feel confident that this plan provides a better solution to the creditors, so we are quite hopeful that the plan will be accepted," said Franklin Pray, Intrepid's President and CEO. However, he admitted that neither Integral nor Skymark could be brought to the table for discussions so far. The reality is the two companies currently participating in the ANA/Skymark proposal are likely unable to respond to Intrepid's requests, as they have already signed a contract with ANA. Nobuo Sayama, President of Integral has said "We made a binding agreement with ANA, so we must execute that," though 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, though publicly, they are obliged to support ANA.
Intrepid had initially welcomed ANA's involvement when Japan's largest carrier reportedly talked positively about inducting Skymark's A330s, however, outraged after the lessor learned ANA would not take them up, it decided to submit its own proposal to rival that of ANA's (Skymark and Intrepid submit rivaling revival plans.). On June 15th, the Tokyo District Court approved both plans for voting (Skymark/ANA and Intrepid both given go-ahead by court.). Intrepid's blueprint had lacked concreteness without an airline sponsor as it was still talking with several overseas carriers, however, by July it had narrowed down the candidates to just Delta and Qantas Airways [QF/QFA]. Now with the world's largest airline by passenger numbers backing the plan and Intrepid boasting likelihood of a higher repayment rate, business-wise, the Intrepid/Delta plan seems more appealing to the debt holders.
However, the outcome still remains very unclear. Intrepid, along with Airbus (Skymark's Airbus A380 order in jeopardy.) and Rolls-Royce, and maybe CIT Aerospace as well, which together claim roughly 96% of Skymark's debt (Skymark's total debts skyrocket to 300 billion JPY.), are likely to endorse the Delta-backed plan. However, most other creditors are Japanese companies and are much smaller businesses. These firms have admitted that they have received strong lobbying from ANA to support the ANA/Skymark plan, and not uncommon in Japan, most of the Japanese creditors may choose a smoother future relationship with the big bossy kid on the block over a minimally higher repayment rate. A proposal is required to win approval of a majority of debt holders, not only in terms of the proportion of liabilities but also the number of creditors as well, and if neither proposal garners enough tallies to meet the requirement, another vote will be held within two months.
Source: Nikkei Shimbun, July 14th. (in Japanese)
Source: Reuters, July 14th. (in English)
Source: Nikkei Shimbun, July 15th. (in Japanese)
Source: Reuters, July 15th. (in English)
Source: Nikkei Shimbun, July 15th. (in Japanese)
Source: Nikkei Shimbun, July 15th. (in Japanese)
Source: Aviation Wire, July 15th. (in Japanese)
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| Boeing 737-8HX(WL) JA73NP taxies at Haneda. Skymark is the third largest holder of domestic slots at the heavily-regulated Tokyo airport, controlling 36 slot-pairs, or 8%. (Photo: Ryosuke Yano) |
Although Intrepid's initial plan called for the entire 18 billion JPY cash injection to be made by Integral Corporation, the updated scheme calls for an investment by Delta that would be no larger than 20%. The maximum share foreign carriers can own in Japanese airlines is 33.3% based on voting rights, however, an ownership change exceeding 20% would require Skymark to relinquish all of their 36 slot-pairs at Tokyo/Haneda [HND/RJTT]. Delta's Managing Director for Japan Masaru Morimoto said "We can assist them in revamping their reservations system (to enable code-shares) and frequent flyer services (Skymark has none), and enhancing the passenger experience. Revenue management is also something we can help."
Delta has been disadvantaged in the Japan – U.S. market against rivals American Airlines [AA/AAL] and United Airlines [UA/UAL], which enjoy joint-ventures (JVs) with Japan Airlines [JL/JAL] in Oneworld and ANA in Star Alliance, respectively. It furiously went after JAL when the flag carrier went bankrupt in 2010 and talks have been held with Skymark on various occasions. Delta currently does have a frequent flyer partnership with Skymark, though very limited, where its domestic flights are available for redemption through SkyMiles. Network-wise, there are little synergies, as Delta's biggest presence in Japan is at Tokyo/Narita [NRT/RJAA], which was completely dropped by Skymark last October (Skymark announces Narita closure and Yonago cuts.). Skymark's main focus is at Haneda, where Delta will soon only have a single late-night flight to Los Angeles [LAX/KLAX], which is not timed for connections. The Seattle-Tacoma [SEA/KSEA] slot-pair is being forfeited.
However, nine daytime international slot-pairs thought to be for U.S. services remain unallocated at Haneda due to disagreements between the authorities, and Delta may have that in mind. It has long been rumored that Delta is the main lobbying power that is blocking the allocation of these precious slots, as the new flights would allow international – domestic connections, fully taking advantage of the JVs at ANA/United and JAL/American. Without a Japanese partner, Delta would be at a disadvantage. Meanwhile, Delta is also in advanced talks with SkyTeam partner Korean Air [KE/KAL] for a deeper partnership if not a JV, and it is unsure what effect the Atlanta-based carrier's involvement in Skymark would have on the discussions. In the long run, Japan is a shrinking market and the bigger focus is on China, evidenced by U.S. carriers adding more nonstop flights to the most populous nation, overflying the land of the rising sun.
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| Airbus A330-323X N820NW at Narita. Delta operates 21 A330-300s and 11 A330-200s inherited from Northwest Airlines and powered by Pratt & Whitney engines, while deliveries of 10 newly-ordered high-gross-weight A330-300s, powered by General Electric engines, have started. Skymark's A330s are powered by Rolls-Royce. (Photo: Ryosuke Yano) |
Provided Intrepid's proposal goes through at the August 5th meeting and Japanese regulators accept Delta's involvement, the U.S.-based aircraft leasing firm would voluntarily withdraw 30 billion JPY out of a demand that Skymark pay 115 billion JPY to the lessor for scrapping leases on seven Airbus A330s (Skymark terminates all Airbus A330 leases.). Intrepid says that would free at least 1.5 billion JPY to be repaid back to the creditors, bringing the repayment rate up to 5.5%, which is more than that figure of the ANA/Skymark plan. Talks are still continuing regarding Delta taking up the seven displaced A330s, but if that bears fruit, it would significantly reduce Skymark's debt, 38% of which is accounted for by Intrepid, further pushing up the repayment rate.
"We feel confident that this plan provides a better solution to the creditors, so we are quite hopeful that the plan will be accepted," said Franklin Pray, Intrepid's President and CEO. However, he admitted that neither Integral nor Skymark could be brought to the table for discussions so far. The reality is the two companies currently participating in the ANA/Skymark proposal are likely unable to respond to Intrepid's requests, as they have already signed a contract with ANA. Nobuo Sayama, President of Integral has said "We made a binding agreement with ANA, so we must execute that," though 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, though publicly, they are obliged to support ANA.
Intrepid had initially welcomed ANA's involvement when Japan's largest carrier reportedly talked positively about inducting Skymark's A330s, however, outraged after the lessor learned ANA would not take them up, it decided to submit its own proposal to rival that of ANA's (Skymark and Intrepid submit rivaling revival plans.). On June 15th, the Tokyo District Court approved both plans for voting (Skymark/ANA and Intrepid both given go-ahead by court.). Intrepid's blueprint had lacked concreteness without an airline sponsor as it was still talking with several overseas carriers, however, by July it had narrowed down the candidates to just Delta and Qantas Airways [QF/QFA]. Now with the world's largest airline by passenger numbers backing the plan and Intrepid boasting likelihood of a higher repayment rate, business-wise, the Intrepid/Delta plan seems more appealing to the debt holders.
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| Boeing 767-381/ER(WL) JA620A at Narita. While the ANA/Skymark proposal would give ANA direct/indirect control over a dominant 60% of domestic slots at Haneda (the remaining 40% is controlled by JAL), the Intrepid/Delta scheme would ensure Skymark remains Japan's third force independent from ANA and JAL, retaining competition. (Photo: Ryosuke Yano) |
However, the outcome still remains very unclear. Intrepid, along with Airbus (Skymark's Airbus A380 order in jeopardy.) and Rolls-Royce, and maybe CIT Aerospace as well, which together claim roughly 96% of Skymark's debt (Skymark's total debts skyrocket to 300 billion JPY.), are likely to endorse the Delta-backed plan. However, most other creditors are Japanese companies and are much smaller businesses. These firms have admitted that they have received strong lobbying from ANA to support the ANA/Skymark plan, and not uncommon in Japan, most of the Japanese creditors may choose a smoother future relationship with the big bossy kid on the block over a minimally higher repayment rate. A proposal is required to win approval of a majority of debt holders, not only in terms of the proportion of liabilities but also the number of creditors as well, and if neither proposal garners enough tallies to meet the requirement, another vote will be held within two months.
Source: Nikkei Shimbun, July 14th. (in Japanese)
Source: Reuters, July 14th. (in English)
Source: Nikkei Shimbun, July 15th. (in Japanese)
Source: Reuters, July 15th. (in English)
Source: Nikkei Shimbun, July 15th. (in Japanese)
Source: Nikkei Shimbun, July 15th. (in Japanese)
Source: Aviation Wire, July 15th. (in Japanese)
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