Creditors choose ANA/Skymark proposal over Delta/Intrepid.

On August 5th, the creditors of bankrupt Skymark Airlines' [BC/SKY] (Skymark to file for bankruptcy.) approved a rehabilitation plan backed by ANA Holdings, parent of All Nippon Airways [NH/ANA], against the Delta Air Lines [DL/DAL]-sponsored proposal submitted by largest creditor Intrepid Aviation (Intrepid picks Delta to sponsor Skymark.). A plan was required to win approval of a majority of debt holders, both in terms of the proportion of liabilities and the number of creditors, and ANA/Skymark garnered 60.25% for the former and 135.5 out of 174 votes for the latter. Delta/Intrepid gained 38.13% and 37.5, respectively, while 25 creditors abstained. Japan is reverting to ANA/JAL duopoly, where they would control a whopping 97% of the domestic market together with its affiliates (ANA/JAL directly account for 79%).

Dark days ahead for the flying public? Seen taxiing at Fukuoka, Boeing 737-8HX(WL) JA73NH left Skymark in January 2015 and now flies with Jeju Air as HL8034. ANA would like to trim Skymark's fleet from the current 27 to around 20, as part of a process to transform the former rival into a de facto subsidiary, as with Air Do, Solaseed Air, and Star Flyer. (Photo: Ryosuke Yano)

With U.S.-based lessor Intrepid claiming 38% of Skymark's debt, the decisions of Airbus (Skymark's Airbus A380 order in jeopardy.), Rolls-Royce, and CIT Aerospace, accounting for 29%, 16%, and 14%, respectively (Skymark's total debts skyrocket to 300 billion JPY.), had been crucial. The Delta/Intrepid proposal was poised to win in terms of the proportion of liabilities as the three had opposed ANA involvement (Airbus and Intrepid to reject ANA/Skymark tie-up.). However, reportedly, in the final days before the vote, ANA etched in a deal with Airbus and Rolls-Royce to acquire some, if not all of Skymark's canceled A380s, powered by Rolls-Royce Trent 900 engines, and also promised CIT Aerospace that they would lease aircraft from them in the future, prompting the three to support ANA. For the number of creditors, it was ANA's to win from the first place, as most of the 197 creditors are smaller domestic companies having business ties with ANA.

Intrepid had initially welcomed ANA's involvement when Japan's largest carrier reportedly talked positively about inducting Skymark's canceled A330s (Skymark terminates all Airbus A330 leases.), however, outraged after the lessor learned ANA would not take them up, it decided to submit its own proposal (Skymark and Intrepid submit rivaling revival plans.). In June, the Tokyo District Court approved both plans for voting (Skymark/ANA and Intrepid both given go-ahead by court.). Intrepid's blueprint had originally lacked concreteness without an airline sponsor, but it selected Delta in July, and came out to boast a higher repayment rate at 5.5% for debts over 1 million JPY, made possible by Intrepid voluntarily withdrawing 30 billion JPY of debts Skymark owes them, provided the deal went through.

At the center of Skymark's bankruptcy was always their 36 coveted slot-pairs, or 8%, at regulated Tokyo/Haneda [HND/RJTT]. A bitter battle that started out with JAL luring Skymark for an extensive code-share (Skymark in talks with JAL for broad tie-up.) and rebuffed by ANA and the government (Skymark forced to seek ANA & JAL dual tie-up.) in the first round, former partners ANA and Malaysia-based pan-Asian LCC AirAsia [AK/AXM] (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.) fighting in the second, and world's largest airline Delta going against ANA in the third has ended in Skymark falling into the hands of Japan's biggest airline, putting a period to Skymark's challenge against the ANA/JAL duopoly. Founded in 1996, they were Japan's first child of deregulation and also the last to remain independent (Skymark gives in to ANA; Japan reverts to duopoly.).

Airbus A380-841 F-WWSL/JA380A at Toulouse. Two of Skymark's six ordered (and canceled) have been completed and are stored. ANA's taking up of the A380s was necessary for them to win support from Airbus and Rolls-Royce, and keep true competition out of bread-and-butter Haneda for as long as possible by keeping Skymark under its control. ANA has deep pockets, but can they fly the A380 profitably? How long can protectionism prevail? (Photo: Airbus)

Skymark's new owners will together inject 18 billion JPY into the embattled carrier, and a debt-equity swap would leave Integral Corporation holding 50.1%, UDS Airlines Investment 33.4%, and ANA Holdings 16.5%. UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, however, as both are loyal ANA partners, ANA would de facto control 49.9%. Six executives will sit on the board, and Integral will select three, ANA two, and UDS one; Integral's President Nobuo Sayama will take the Chairman's seat while DBJ's former Managing Director Masahiko Ichie will become President. The ANA/Skymark plan is expected to include extensive code-sharing, joint ticket sales, joint fuel purchases, joint crew training, and gradually aligning Skymark's network to complement that of ANA's, essentially stopping short of a takeover, replicating the cases with AIRDO [HD/ADO] (d.b.a. Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ]. A new corporate identity is also likely (Skymark hints at new brand: SKY bee?).

Now, all but one of Japan's mainline carriers would be associated 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. Independent of the two incumbents is fledgling Spring Airlines Japan [IJ/SJO] (Spring Airlines Japan plans Kansai, Sapporo, and China.), which will soon be joined by AirAsia Japan (Mk II) (AirAsia Japan confirms Spring 2016 launch from Nagoya.) in Spring 2016. For Haneda's slots, ANA/JAL would control 100%; JAL holds 40% (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, ANA's figure jumps to a whopping 60%.

Source: Skymark Airlines, August 5th. (in Japanese)
Source: Reuters Japan, August 5th. (in Japanese)
Source: Nikkei Shimbun, August 5th. (in Japanese)

Intrepid picks Delta to sponsor Skymark.

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.

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.

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.

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)

Skymark/ANA and Intrepid both given go-ahead by court.

On June 15th, the Tokyo District Court, where Skymark Airlines [BC/SKY] filed for bankruptcy protection (Skymark to file for bankruptcy.), approved both rehabilitation proposals for the embattled carrier for discussion at a creditors' meeting; one submitted by Skymark themselves that involves sponsorship by ANA Holdings, parent of All Nippon Airways [NH/ANA] (Skymark gives in to ANA; Japan reverts to duopoly.), and the other by Intrepid Aviation, aircraft lessor and Skymark's biggest creditor (Skymark and Intrepid submit rivaling revival plans.). In Japan, it is very unusual for multiple plans to be approved for consideration. The meeting will be held on August 5th.

Boeing 737-82Y(WL) JA73NE comes in to land at New Chitose near Sapporo. Japan's third largest carrier controls 36 coveted slots-pairs at preferred Haneda. (Photo: Ryosuke Yano)

Under the Skymark/ANA scheme, a total of 18 billion JPY would be injected into the bankrupt airline by Integral Corporation, UDS Airlines Investment, and ANA Holdings, which would in turn control 50.1%, 33.4%, and 16.5%, respectively. Six executives would sit on the board; Integral would select three, ANA two, and UDS one, while Integral would appoint the Chairman and UDS the President. The proposal would likely include reducing Skymark's network and fleet, implementing code-sharing, joint ticket sales, joint fuel purchases, and joint crew training with ANA, and gradually aligning its network to complement that of ANA's. This would virtually transform Skymark into another zombie feeder carrier, replicating how ANA controls AIRDO [HD/ADO] (d.b.a. Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ]. Debt repayment rate to those who claim over 1 million JPY is set at 5%.

Boeing 767-381 JA8569 arrives at Haneda. Adding Skymark to ANA's portfolio of zombie carriers 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 effectively brings back duopoly to Japan's most important airport. (Photo: Ryosuke Yano)

Meanwhile, Intrepid's deal includes the same 18 billion JPY, however, the plan has been amended to have Integral as the sole provider of the injection. This effectively paves the way for non-investment sponsorship by foreign airlines, which could be more acceptable to the regulators who are still uncomfortable about allowing foreign investment in Japanese carriers at slot-restricted Tokyo/Haneda [HND/RJTT]. Skymark's biggest creditor is seeking 900 million USD (104 billion JPY) for scrapping seven Airbus A330 contracts (Skymark terminates all Airbus A330 leases.), and though it favored ANA sponsorship when Japan's largest airline said it could induct the A330s, it decided to submit its own proposal when it learned ANA would not take them. Debt repayment rate for those claiming over 1 million JPY has been increased from 3% to 5% or higher, matching that of the Skymark/ANA plan.

Intrepid is reportedly holding talks with a number of candidate sponsors, who would be willing to take up the grounded A330s. Rumors point to Delta Air Lines [DL/DAL] and Hainan Airlines [HU/CHH], and at least the former's President Ed Bastian confirmed they had been approached though declining to give any details. The Skyteam member has long wanted a partner in Japan, and fought hard and failed to lure then-bankrupt Japan Airlines [JL/JAL] from American Airlines [AA/AAL] and Oneworld back in 2010. However, times have changed and so may have Delta's priorities; Japan is a shrinking market and U.S. airlines are focusing more on China, and Delta is reportedly negotiating a deeper cooperation, if not a joint-venture (JV), with Skyteam partner Korean Air [KE/KAL]. Delta also recently decided to forfeit its Seattle-Tacoma [SEA/KSEA] slot-pair at Haneda, leaving only Los Angeles [LAX/KLAX].

Boeing 777-232/ER N862DA at Narita. Delta's Tokyo presence it inherited from the Northwest merger continues to shrink; other than U.S. cities, only five intra-Asian/Pacific routes are expected to remain by 2016. Pursuing China through a potential deeper cooperation with Korean Air seems to be their priority. (Photo: Ryosuke Yano)

In addition, though Delta may take the Rolls-Royce-powered A330s (their current A330s are Pratt & Whitney and General Electric), they have no interest in A380s (Skymark's Airbus A380 order in jeopardy.). So how much support from Airbus, which also opposed the Skymark/ANA deal after ANA turned down the canceled A380s (Airbus and Intrepid to reject ANA/Skymark tie-up.), Intrepid's plan would be able to gain remains questionable. At the August 5th creditors' meeting, 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 and Airbus's claims together accounting for over 60% of the liabilities, the European planemaker's decision is crucial. "We will study both plans. We hope one of them, if not two, will be viable for Skymark," said Fabrice Brégier, CEO of Airbus.

The supervisory board selected by the court said both proposals were realistic, commenting "It can't be said that Skymark wouldn't be able to carry out its rehabilitation without an airline sponsor," adding "Skymark had originally sought for a revitalization process without a sponsoring airline. Also, it can't be said that another sponsor (other than ANA) could not be found in the future." Skymark and ANA will hold an emergency meeting in early July to persuade creditors to endorse their proposal on August 5th, while Intrepid will continue to talk with airlines in search of a sponsor (and taker of the A330s). For most of the flying public, Intrepid's proposal would be welcome as it confirms Skymark's future as the third force independent from ANA or JAL, ensuring competition remains at Haneda. Stay tuned.

Source: Nikkei Shimbun, June 17th. (in Japanese)
Source: Yomiuri Shimbun, June 17th. (in Japanese)
Source: Reuters Japan, June 19th. (in Japanese)

Skymark and Intrepid submit rivaling revival plans.

On May 29th, Skymark Airlines [BC/SKY] filed a corporation rehabilitation plan with the Tokyo District Court that includes a sponsorship agreement with ANA Holdings, parent of All Nippon Airways [NH/ANA]. The new owners would together inject 18 billion JPY into the bankrupt carrier (Skymark to file for bankruptcy.), and a debt-equity swap would leave Integral Corporation holding 50.1%, UDS Airlines Investment 33.4%, and ANA Holdings 16.5%. UDS is a new investment firm jointly owned by Development Bank of Japan and Sumitomo Mitsui Banking. Six executives will sit on the board, and Integral will select three, ANA two, and UDS one; Integral will appoint the Chairman while UDS will choose the President.

Boeing 737-86N(WL) JA73NK rotates from Haneda. If the ANA partnership is approved, Skymark will likely use some of its 36 slots to take over or launch less profitable routes for ANA, as is the case with Air Do, Solaseed Air, and Star Flyer. (Photo: Ryosuke Yano)

The proposal includes allocating all 18 billion JPY to repay its debt, which Skymark targets to reduce to just 5% for creditors who claim over 1 million JPY. Creditors have so far filed claims totaling 308.9 billion JPY (Skymark's total debts skyrocket to 300 billion JPY.), including aircraft lessor Intrepid Aviation seeking 900 million USD (104 billion JPY) for scrapping seven Airbus A330 contracts (Skymark terminates all Airbus A330 leases.) and Airbus demanding 700 million USD (85 billion JPY) for the canceled A380 order (Skymark's Airbus A380 order in jeopardy.). The ANA/Skymark plan is expected to include code-sharing, joint ticket sales, joint fuel purchases, and joint crew training with ANA. A new corporate identity is also likely (Skymark hints at new brand: SKY bee?).

Meanwhile, biggest creditor Intrepid, which has decided to oppose ANA involvement in the rehabilitation proceedings (Airbus and Intrepid to reject ANA/Skymark tie-up.), also submitted a rivaling plan on May 29th. It says Integral would be the primary sponsor, but it would select an alternative airline partner other than ANA. "We are currently in the process of identifying candidates for a new airline sponsor," said the U.S.-based leasing firm, revealing Delta Air Lines [DL/DAL] as one of them (Skymark's fate: AirAsia, ANA, Delta, or...?). The debt repayment rate for those claiming over 1 million JPY is set at 3%, which is lower than the ANA/Skymark proposal. The European planemaker had also handed in a statement to the court on May 28th saying "If Skymark submits the plan (that involves ANA's sponsorship), there is a significant and realistic risk that it would not be able to gain the support of major creditors, including Airbus."

Airbus A320-211 N341NW at Salt Lake City. Intrepid Aviation is reportedly asking Delta Air Lines to sponsor Skymark. Airbus may also support the scheme, as the SkyTeam carrier is a major customer with 25 A350-900s, 25 A330-900neo aircraft, nine more A330-300s, and 45 A321s on order with potential for more. Delta has long wanted a partner in Japan, but has so far refrained from assisting Skymark. (Photo: Ryosuke Yano)

Intrepid had initially welcomed ANA's involvement as Japan's largest carrier reportedly talked positively about inducting Skymark's A330s, however, after they learned Japan's largest carrier would not take them up, it changed its mind. "It is true that we discussed the possible use of Skymark's A330 with Intrepid. And some media are reporting as if we are breaking a promise, but we didn't have any binding agreement. We ourselves are confused by what Intrepid is saying," said Toyoyuki Nagamine, Senior Executive Officer of ANA. Airbus is also unsatisfied with ANA not taking up the A380s. "We're not going to acquire a new aircraft just because we became Skymark's sponsor. We believe we enjoy a long friendly relationship with Airbus, and that would continue in the future. We will assist Skymark in negotiations with them," responded Mr. Nagamine.

Skymark criticized Intrepid's plan, saying feasibility of the rival proposal "is not clear at all" and offers a lower repayment rate for creditors' claims. The bankrupt carrier expressed confidence that if the court approves both plans, a majority of creditors would give consent for the ANA/Skymark rehabilitation plan at their meeting currently planned for July. 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; thus rejection of the proposal by the two biggest creditors effectively blocks the ANA/Skymark tie-up. However, Skymark believes its actual debt they owe to Intrepid and Airbus are much lower, and hence do not need the support of the two (at least for now) biggest creditors.

Airbus A320-211 JA8947 taxies past a JAL Boeing 737. Adding Skymark to ANA's portfolio of puppet carriers Air Do, Solaseed Air, and Star Flyer would have them control a dominant 60% of domestic slots at Haneda. The JAL Group controls the remaining 40%, effectively bringing back duopoly at Japan's most important airport. (Photo: Ryosuke Yano)

ANA Holdings President Shinya Katanozaka said "We are the best sponsor." Although ANA and Intrepid have agreed to re-list Skymark within five years, the chief said "Our firm hold of Skymark shares will translate into their revitalization," adding "If there is a merit to both of us, we want to continue the partnership beyond their rehabilitation period." With so much priority on keeping genuine competition out of Tokyo/Haneda [HND/RJTT], ANA likely has no intention of letting go of its influence on the former rival start-up, which ultimately forced Japan's largest carrier to launch full-fledged LCCs Peach Aviation [MM/APJ] and the first AirAsia Japan (Mk I) [JW/WAJ] (CoachFlyer JW8541: NRT - FUK on AirAsia Japan's Airbus A320.), which now operates as Vanilla Air [JW/VNL].

Skymark plans to commence code-sharing with ANA as soon as it receives approval from regulator Japan Civil Aviation Bureau (JCAB), though routes have not been disclosed. Nobuo Sayama, President of Integral said, "We will suspend Sendai (Skymark to pull out of Sendai in October.) and Yonago (Skymark decides to close Yonago, keep Ibaraki.), but will fly elsewhere, where we can find more customers," adding "We will discuss new destinations with ANA as early as autumn." As with ANA's other minority-owned but de facto controlled carriers AIRDO [HD/ADO] (d.b.a. Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ], some of Skymark's Haneda slots are likely to be used to take over ANA's less profitable routes or launch new links on behalf of ANA, gradually transforming Skymark into a feeder carrier for Japan's biggest carrier.

ANA's Mr. Nagamine says Skymark would still be independent, as "Pricing would be decided by Skymark." Well, not many would agree with that.

Source: Aviation Wire, May 29th. (in Japanese)
Source: Aviation Wire, May 29th. (in Japanese)
Source: Reuters Japan, June 1st. (in Japanese)
Source: Nikkei Shimbun, June 2nd. (in Japanese)
Source: Yomiuri Shimbun, June 3rd. (in Japanese)
Source: Business Journal, June 3rd. (in Japanese)
Source: Nikkei Shimbun, June 5th. (in Japanese) 

*Edited/updated on June 5th, 2015.

Airbus and Intrepid to reject ANA/Skymark tie-up.

Skymark Airlines' [BC/SKY] biggest creditors Intrepid Aviation and Airbus have informed the bankrupt carrier (Skymark to file for bankruptcy.) that they would block a corporation rehabilitation plan involving All Nippon Airways [NH/ANA]. Creditors have filed claims totaling 320 billion JPY (Skymark's total debts skyrocket to 300 billion JPY.), with the U.S.-based leasing firm seeking 900 million USD (104 billion JPY) for scrapping seven A330 contracts (Skymark terminates all Airbus A330 leases.) and the European planemaker demanding 700 million USD (85 billion JPY) for the canceled Airbus A380 order (Skymark's Airbus A380 order in jeopardy.).

Boeing 737-86N(WL) JA73NX lands at Haneda near sunset. Its fleet of 27 baby Boeings is also expected to be reduced. (Photo: Ryosuke Yano)

Both Airbus and Intrepid had earlier welcomed the tie-up after ANA reportedly told them it would consider taking up the A380s and A330s in concern, but the latest scheme does not include any use of the displaced airframes by ANA nor Skymark. The plan, which needs to be submitted to the Tokyo District Court by May 29th, is required to win approval of a majority of debt holders, both in terms of the proportion of liabilities and the number of creditors; thus rejection of the proposal by the two biggest creditors effectively blocks the ANA/Skymark deal.

On April 22nd, Skymark, Integral Corporation, and ANA Holdings had signed a Memorandum of Understanding (MoU) where the investment fund would take a 50.1% control while Japan's largest carrier would virtually control 49.9% together with its partner banks (Skymark gives in to ANA; Japan reverts to duopoly.). The latest plan calls for ANA to hold 16.5% while Development Bank of Japan and Sumitomo Mitsui Banking would together hold 33.4%; Skymark's 36 lucrative slots-pairs at Haneda would need to be relinquished if ANA's shareholding exceeds 20%, as required by the regulator. The initial corporation rehabilitation plan is expected to include code-sharing, joint ticket sales, joint fuel purchases, and joint crew training with ANA. A new corporate identity is also likely (Skymark hints at new brand: SKY bee?).

Skymark is boldly setting its debt repayment ratio target at around 5%, asking its creditors to write off the remainder. The embattled airline does not have enough time to reach a deal with creditors by May 29th, and negotiations are likely to continue until July. Meanwhile, either Nobuo Sayama or Reijiro Yamamoto, the two Presidents of Integral Corporation, is expected to be appointed Skymark's Chairman, representing the airline. ANA was looking for a veteran to install in Skymark as President, but the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) is reportedly opposing it to keep Skymark as independent as possible, and that position is now likely to come from Development Bank of Japan.

ANA and Integral's agreement is still fragile with looming distrust and conflicting interests; ANA wants to place Skymark under its influence once and for all and keep genuine domestic competition out of bread-and-butter Haneda for as long as possible, while Integral wants to rebuild Skymark as a fully independent carrier. And now, either ANA (or Skymark) is forced to take up the A380s and A330s or pay the hefty compensation, and in the worst case scenario at least for ANA, Skymark would need to find another partner (ANA and AirAsia bid to save Skymark.). But for Skymark too, it is questionable if they have enough financial strength and support to withstand the time and work needed to propose another plan with a new partner from scratch.

Source: Nikkei Shimbun, May 19th. (in Japanese)
Source: Mainichi Shimbun, May 26th. (in Japanese)
Source: Yomiuri Shimbun, May 26th. (in Japanese)
Source: Nikkei Shimbun, May 26th. (in Japanese)
Source: Nikkei Shimbun, May 27th. (in Japanese) 
Source: Yomiuri Shimbun, May 27th. (in Japanese)

*Edited/updated on May 27th, 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)

Skymark accedes to ANA investment.

Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) has reportedly decided to accept sponsorship from ANA Holdings, parent of Japan's largest carrier All Nippon Airways [NH/ANA]. Over 20 firms, including AirAsia [AK/AXM] and ANA (ANA and AirAsia bid to save Skymark.), had submitted proposals to help Japan's third largest carrier out of bankruptcy. ANA would co-sponsor the embattled carrier with investment fund Integral Corporation, which has already pledged 9 billion JPY to keep Skymark flying while it restructures. Details will be released next week, according to people close to the matter.

Boeing 737-8HX JA737N prepares to depart from Naha while another Skymark 737 arrives into the Okinawa airport. The fleet of 27 narrow-body Boeings could be reduced to 20 if ANA's proposal goes through. (Photo: Ryosuke Yano)

Under the plan, Integral would control 50% or more, while ANA Holdings and its partner financial institutions would together hold the remaining 50% or less (Skymark likely to accept ANA sponsorship.). ANA's actual shareholding would be kept under 20% so that Skymark would not need to relinquish their 36 lucrative slot-pairs at Tokyo/Haneda [HND/RJTT], which is required by Japan's Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) if that figure exceeds 20%. An initial capital of 18 billion JPY is to be injected into the ailing carrier; 9 billion JPY from Integral, 3.5 billion JPY from ANA, and the rest from ANA's partner financial firms.

Skymark also considered remaining independent from other airlines with support from only Integral, and the equity firm mulled being its sole sponsor. However, total liabilities grew to 316 billion JPY (Skymark's total debts skyrocket to 300 billion JPY.) after all creditors filed claims, including 700 million USD (84 billion JPY) from Airbus for the Airbus A380 cancellation (Skymark hopes to settle Airbus A380 penalty in October.) and 900 million USD (108 billion JPY) from aircraft lessor Intrepid Aviation for scrapping A330 contracts (Skymark terminates all Airbus A330 leases.). With Skymark's total assets having dwindled to just 5 billion JPY in February, management apparently deemed it difficult to reduce the charges without the negotiation power of a strong backing airline.

Domestic-configured Boeing 777-281/ER JA742A taxies for departure from Haneda. ANA will start retiring older 777-200s this year, with two to leave the fleet during FY2015. (Photo: Ryosuke Yano)

For ANA, the incentive had always been Skymark's 36 slot-pairs, or 7.8% of all domestic slot-pairs at heavily-regulated Haneda. Their proposal had called for sending in ANA's executives as advisers, reducing Skymark's fleet to around 20 aircraft, implementing extensive code-sharing, joint ticket sales, joint fuel purchases, joint crew training, and aligning its network to complement that of ANA's, virtually transforming Skymark into a feeder carrier for ANA, 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]. Archrival Japan Airlines [JL/JAL] holds 40% of domestic slot-pairs (184.5) at Haneda with ANA 37.4% (172.5), however, the latter literally dominates 52.2% when combining those of Air Do, Solaseed Air, and Star Flyer. Adding Skymark would put all post-deregulation start-ups at Haneda under de facto ANA control and raise its share of slots to a whopping 60%.

However, ANA and Integral's agreement is reportedly fragile with conflicting interests and differences yet to be solved. ANA together with its partner banks initially demanded a 80% stake in Skymark, in effect taking full control, an idea vehemently opposed by Integral, which wants to rebuild Skymark as an independent carrier. Eventually re-listing the carrier and keeping all jobs are some of the terms that have been agreed on. 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 Haneda, though this may be invalidated by the governing Liberal Democratic Party (LDP), with which ANA enjoys a cozy relationship. But if Integral holds majority control, sponsoring Skymark will not fully go in protectionist ANA's favor, which obviously wants to keep Skymark under its influence once and for all and keep genuine domestic competition out of bread-and-butter Haneda for as long as possible.

Time is running out. Skymark has between April 22nd and May 8th to negotiate with creditors to reduce its liabilities. A corporation rehabilitation plan must be handed in to the Tokyo District Court by May 29th, and it would need majority go-ahead at a creditor's meeting that would be held in late June for the plan to be implemented by the end of July. A new brand is also currently under consideration for launch as early as summer (Skymark hints at new brand: SKY bee?). In any case, the interests of the flying public seem to be out of the picture, completely.

Source: Nikkei Shimbun, April 15th. (in Japanese)
Source: Nikkei Shimbun, April 18th. (in Japanese)
Source: NHK, April 18th. (in Japanese)
Source: Asahi Shimbun, April 18th. (in Japanese)
Source: Sankei Shimbun, April 18th. (in Japanese)

Skymark hints at new brand: SKY bee?

Bankrupt Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) confirmed that it will change its name and livery, and revamp their product along with staff uniforms. The re-branding could take place as early as late July, which is when their corporation rehabilitation plan would be implemented, provided it wins majority approval from creditors (Skymark's total debts skyrocket to 300 billion JPY.) at a meeting to be held in late June. The plan must be submitted to the Tokyo District Court, where it filed for bankruptcy protection, by May 29th.

Boeing 737-82Y(WL) JA737Z arrives at Ishigaki as flight BC567 from Naha on March 28th as Skymark's last flight to the southern Okinawa airport. Along with Miyako, it was dropped as part of their restructuring. (Photo: Aviation Wire)

"We want to think from zero," said Nobuo Sayama, President of Integral Corporation, in a weekend news program, revealing SKY bee is one of their top candidates for the new identity. Together with advertising agencies Sunny Side Up and TYO, the investment fund, which has pledged 9 billion JPY to keep the cash-strapped airline flying while it reorganizes (Skymark to cut 15% of flights, ground all Airbus A330s.), disclosed a logo that uses a hornet. On April 6th, Skymark's President Masakazu Arimori confirmed "We have come a long way, so we want to renew the airline. We can't tell if it will be SKY bee, but SKY will remain part of it."

Meanwhile, the selection of sponsors to help Skymark out of bankruptcy (Skymark seeks investor airline; scraps ANA & JAL dual tie-up.) is taking much longer than expected. "If there is an airline who is sincerely willing to help rebuild Skymark, we would like to work with them," said Mr. Sayama, implying their view of both bidders AirAsia [AK/AXM] and ANA Holdings, parent of All Nippon Airways [NH/ANA] (ANA and AirAsia bid to save Skymark.), as having no genuine interest in Skymark except for the lucrative 36 slot-pairs Japan's third largest carrier controls at Tokyo/Haneda [HND/RJTT]. "If our employees don't feel comfortable about the sponsor, we won't get along," reiterating that Integral is prepared to become its sole sponsor, taking full control of Skymark's rehabilitation.

On March 30th, ANA Holdings' new President Shinya Katanozaka said "We can't let a competitor slip away with the slots," adding "That would be detrimental to our business." So that Skymark wouldn't need to relinquish its precious slots, ANA would keep its investment under 20%, but "Partnering without shareholding is out of question," said Mr. Katanozaka, adding "We need to be at the center of their restructuring." The Ministry of Land, Infrastructure, Transport, and Tourism (MLIT), which regulates Haneda, has notified they would limit any ANA investment to five years, in an effort to keep Skymark as Japan's third force, but ANA's chief opposes "It took over a decade to get rid of AIRDO's [HD/ADO] (d.b.a. Air Do) and Skynet Asia Airways' [6J/SNJ] (d.b.a. Solaseed Air) debts, so in that event we will urge MLIT to lift that."

AirAsia Group's CEO Tony Fernandes is also expected to visit Tokyo soon to pitch his proposal to the embattled airline. According to people close to the matter, the chief of Asia's largest LCC group will present details of a plan to help Skymark settle penalties charged by Airbus and aircraft lessors for the canceled A380s (Skymark's Airbus A380 order in jeopardy.) and A330s (Skymark terminates all Airbus A330 leases.) as well as cooperate on operations, and discuss a potential future investment. "Our plan guarantees Skymark's independence," said the source. Meanwhile, a Skymark spokesperson said "We haven't talked in detail, so at this point we can't say if AirAsia's plan is acceptable or not." Mr. Fernandes is also busy with AirAsia Japan (Mk II), which is currently preparing to launch operations from Nagoya/Chubu Centrair [NGO/RJGG] by the end of this year (New AirAsia Japan eyes launch by year-end 2015.).

However, with Skymark starting to tweak its product, including overhauling its brand, it may actually decide to go without any airline sponsors after all. Check-in baggage allowance has been increased from 15 to 20 kilograms, while stricter cosmetics and hairstyle rules for flight attendants have been implemented, which at least don't seem to go in the direction of a LCC. But opting not to name any airline sponsors is likely to have a negative effect on their negotiation power with creditors in reducing their huge debt (Skymark's total debts skyrocket to 300 billion JPY.). Stay tuned.

Source: Reuters Japan, March 31st. (in Japanese)
Source: Jiji Press, April 1st. (in Japanese)
Source: Mainichi Shimbun, April 4th. (in Japanese)
Source: Aviation Wire, April 6th. (in Japanese) 
Source: Nikkei Shimbun, April 7th. (in Japanese)

*Edited/updated on April 7th, 2015.

Skymark decides to close Yonago, keep Ibaraki.

Skymark Airlines [BC/SKY] confirmed that its Yonago [YGJ/RJOH] focus city would be closed down after operating its last flights on August 31st. The bankrupt carrier (Skymark to file for bankruptcy.) notified the Japan Civil Aviation Bureau (JCAB) on February 27th that they would suspend its single daily services to Kobe [UKB/RJBE] and Okinawa/Naha [OKA/ROAH], its last two remaining destinations from the airport in Tottori prefecture.

Boeing 737-8HX JA737P is being prepared for its next flight at Ibaraki. Being the sole domestic carrier at the airport, Skymark has confirmed it will stay. Ibaraki is Japan's first LCC-tailored airport, boasting operating fees 40% lower than the other two main airports serving the Greater Tokyo region. (Photo: Ryosuke Yano)

Yonago was a new destination only launched on December 20th, 2013 as a focus city, boasting five routes covering Kobe, Naha, Sapporo/New Chitose [CTS/RJCC], Tokyo/Haneda [HND/RJTT], and Tokyo/Narita [NRT/RJAA] at peak time last summer. However, as Skymark's financial situation quickly deteriorated (Skymark braces for 13.7 billion JPY loss in FY2014.), New Chitose along with both airports serving Tokyo were axed effective October 27th, 2014. Load factor for January was 42.9% for Yonago – Kobe and 39.3% for Yonago – Naha.

Japan's third largest carrier is also considering closing down its Sendai [SDJ/RJSS] focus city as well (Skymark mulls Yonago pull-out and Sendai cuts.). All flights to Fukuoka [FUK/RJFF] and New Chitose will be dropped effective March 30th, after it reduced flights on February 1st (Skymark to cut 15% of flights, ground all Airbus A330s.), relegating it to a spoke city. Kobe will remain the only destination, but load factors for that route have also hovered around 30-40%, so an entire withdrawal is probably only a matter of time.

Meanwhile, they confirmed that it would keep flying from Ibaraki [IBR/RJAH], citing low operating costs. "We will continue to use it as one our main focus cities; we may even add more flights," said Representative Chairman Takashi Ide. Skymark is the only domestic carrier serving the airport originally designed with LCCs in mind. It is also the third airport in the Kanto (Greater Tokyo) region after Haneda and Narita, mainly catering to those living in the north and northeast of Japan's largest metropolitan area.

The cash-strapped airline is currently running on financial aid provided by investment fund Integral Corporation, and they together are in the process of selecting an airline sponsor as well as a few non-airline partners. AirAsia [AK/AXM] and ANA Holdings, parent of All Nippon Airways [NH/ANA], are the only two airline firms that have submitted comprehensive proposals (ANA and AirAsia bid to save Skymark.), however, Integral's Director Nobuo Sayama recently interestingly said "We will examine all proposals, but we don't necessarily need to make a selection," adding "We may choose to do it 100% ourselves."

Skymark's shares were de-listed on March 1st, and it will perform a 100% capital reduction, turning all stocks into scrap pieces of paper. Former President and CEO Shinichi Nishikubo, who owned 30% of Skymark when he was at helm, had decreased its shareholding to 9.78% by February 6th, and that figure was down to zero by February 19th.

Source: Nikkei Shimbun, February 26th. (in Japanese)
Source: Skymark Airlines, February 27th. (in Japanese)
Source: NHK, February 27th. (in Japanese)
Source: Mainichi Shimbun, February 28th. (in Japanese)
Source: Nihonkai Shimbun, February 28th. (in Japanese)