Skymark exits bankruptcy with eye on international.

On March 28th, Skymark Airlines [BC/SKY] announced that it had completed its corporation revitalization process and received approval to emerge from bankruptcy. At the same time, it also revealed its mid-term plan for FY2016-2018, which includes opening up international routes and targeting 80 billion JPY in total revenues to produce an operating profit of 7 billion JPY by FY2018. Japan's third largest carrier filed for bankruptcy protection on January 29th, 2015 with the Tokyo District Court (Skymark to file for bankruptcy.).

Boeing 737-8HX(WL) JA73NP arrives at Sapporo New Chitose. What future for Skymark? The domestic market is shrinking, while regional international routes are now well-served by LCCs. One solution could be the combination of using midnight international routes at Haneda (which would increase utilization), coming up with a loyalty program, and upgrading their reservations system to enable code-shares with international carriers (which would allow them to leverage their domestic network), though the third would most likely be vetoed by ANA. (Photo: Ryosuke Yano)

Once post-deregulation's most successful start-up to challenge the ANA/JAL duopoly, Skymark was re-launched on September 29th under new ownership (Skymark relaunched with ANA sponsorship.). Integral Corporation holds the majority 50.1%, ANA Holdings has a grip on 16.5%, and UDS Airlines Investment has 33.4%. UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, both loyal partners of ANA. ANA Holdings is the parent of Japan's now largest carrier All Nippon Airways [NH/ANA].

Skymark's creditors initially demanded 308.9 billion JPY in total liabilities (Skymark's total debts skyrocket to 300 billion JPY.), however, that was reduced to 154.3 billion JPY after negotiations. Under court protection, the final repayment figure was settled at 16.1 billion JPY. Major creditors included Intrepid Aviation, Airbus, Rolls-Royce, and CIT Aerospace. The U.S.-based aircraft lessor initially sought for 900 million USD for scrapping Airbus 330 leases (Skymark terminates all Airbus A330 leases.) and fought against ANA to sponsor Skymark with Delta Air Lines [DL/DAL] (Intrepid picks Delta to sponsor Skymark.). The European planemaker at first called for 700 million USD for the A380 cancellation (Skymark hopes to settle Airbus A380 penalty in October.), but drastically reduced the amount after ANA agreed to take those A380s (Bye-bye Skymark, Hello ANA Airbus A380?).

Skymark's financial performance is quickly improving, partly helped by lower fuel costs. FY2015 is expected to finish with revenues amounting to 70 billion JPY, producing an operating profit of 1.5 billion JPY. It reverses the airline's results for FY2014, which saw revenues totaling 80.9 billion JPY but translating to a 17.6 billion JPY operating loss. It now targets FY2018 with total revenues at 80 billion JPY with an operating profit of 7 billion JPY, calculating with crude oil at 50 USD per barrel. "We have 26 737s in our fleet, but only use 20 of them at once. Bringing utilization up to 24 aircraft will help increase revenue," said President Masahiko Ichie, adding "Our CASK (cost per available seat kilometer) is 8.5-8.6 JPY, and we're aiming for 8 JPY." During the time frame, a new future aircraft type will also be evaluated.

The revitalized airline also announced plans to go international by FY2018 starting with charter flights. "We need to use FY2016 to further strengthen our balance sheet. We'll carry out feasibility studies in FY2017, and hope to operate the first charters in FY2018," said Mr. Ichie, adding "East Asia and Southeast Asia, as well as Guam and Saipan are likely candidates." Skymark's President also said they are evaluating re-entering markets it withdrew from during its bankruptcy, mentioning Ishigaki [ISG/ROIG], Kumamoto [KMJ/RJFT], Miyako [MMY/ROMY] (Skymark to cut 15% of flights, ground all Airbus A330s.), Sendai [SDJ/RJSS] (Skymark to pull out of Sendai in October.), and Yonago [YGJ/RJOH] (Skymark decides to close Yonago, keep Ibaraki.). "We don't want to axe a new route after only one year," said Mr. Ichie, explaining new destinations would be carefully considered.

Meanwhile, Chairman Nobuo Sayama reiterated that code-sharing with ANA has been indefinitely postponed, as Skymark continues to refuse to adopt ANA's Able-D reservation system. Mr. Sayama believes retaining its own reservations system is key to keeping Skymark independent, and taking up Able-D would essentially relegate Skymark to a de facto puppet of ANA, joining the likes of AIRDO [HD/ADO] (d.b.a. Air Do), Solaseed Air [6J/SNJ], and Star Flyer [7G/SFJ]. "Our performance is improving, so there is no urgent need for code-sharing," said Mr. Sayama, adding "Our arms are open. We have proposed to code-share by placing an interface between ANA's and ours. We don't necessarily need to adopt their system. It's up to ANA."

Mr. Sayama, who also serves as the President of Skymark's largest shareholder Integral, is seemingly determined to limit ANA influence to only maintenance and operational issues, and not with business decisions. The conflict will continue between Integral and ANA as the former's interest lies in keeping Skymark operationally independent until its planned re-listing in 2020 or before, while the latter wants to keep Skymark under its influence for as long as possible to shut out true competition at bread-and-butter Tokyo/Haneda [HND/RJTT]. However, even if code-share talks do not bear fruit, for ANA its investment may have already been worth it, as otherwise a Delta-backed Skymark would have posed a much stronger threat to ANA.

Source: Skymark Airlines, 2016 March 28th. (in Japanese)
Source: Nikkei Shimbun, 2016 March 28th. (in Japanese)
Source: Aviation Wire, 2016 March 28th. (in Japanese)

Skymark loads Haneda red-eye to Okinawa and Sapporo.

On February 19th, Skymark Airlines [BC/SKY] announced that it will operate midnight flights from its Tokyo/Haneda [HND/RJTT] hub to Okinawa/Naha [OKA/ROAH] and Sapporo/New Chitose [CTS/RJCC] between July 1st and October 2nd. The former will operate daily while the latter will fly every day except for Monday. This is the first time a scheduled midnight domestic passenger flight has been loaded from New Chitose since its opening in 1988. All flights will be operated by 177-seat Boeing 737-800s.

Boeing 737-86N(WL) JA73NJ taxies for departure from Haneda. Chairman Nobuo Sayama believes that Skymark would need to go international before the end of the decade as the domestic market continues to shrink. It currently flies 26 737-800s. (Photo: Ryosuke Yano)

The Haneda – New Chitose red-eye round-trip departs Tokyo in the evening, arriving at the Hokkaido capital later in the evening, while the return leg departs New Chitose just past midnight, arriving into Haneda in the early hours. Meanwhile, for the Haneda – Naha red-eye service, both ways will be timed in the early hours of the day and arrive near sunrise at the respective destinations. Fares start from as low as 6,000 JPY, excluding airport service charge.

Flight Schedule:
Haneda – Naha NEW six weekly RED-EYE flight with 737-800.
BC527 HND 0235 – 0520 OKA 73H/738 Tu/We/Th/Fr/Sa/Su *Jul/1 - Oct/2.
BC528 OKA 0305 – 0525 HND 73H/738 Tu/We/Th/Fr/Sa/Su *Jul/1 - Oct/2.
**Skymark will operate up to seven round-trips total per day.

Haneda – New Chitose NEW daily RED-EYE flight with 737-800.
BC731 HND 2130 – 2305 CTS 73H/738 Daily *Jul/1 - Oct/1.
BC732 CTS 0010 – 0200 HND 73H/738 Daily *Jul/2 - Oct/2.
**Skymark will operate nine round-trips total per day.

Last October, local governments and residents near New Chitose agreed to allow up to 30 slot-pairs to arrive and depart between 2200 and 0700 JST in an effort to lure and offer flexibility to cost-conscious airlines. Previously, only six were made available. Until now, the slots have mostly been used by freight carriers or All Nippon Airways' [NH/ANA] passenger aircraft carrying only belly cargo. Koninklijke Luchtvaart Maatschappij [KL/KLM] (d.b.a. KLM Royal Dutch Airlines) was the first to operate scheduled passenger services using the slots, inaugurating Nagoya/Komaki [NKM/RJNA] – New Chitose – Amsterdam/Schiphol [AMS/EHAM] in October 1997. It was suspended in February 2002.

Once post-deregulation's most successful start-up to challenge the ANA/JAL duopoly, the bankrupt airline (Skymark to file for bankruptcy.) is now owned by Integral Corporation, which holds 50.1%, ANA Holdings, with 16.5%, and UDS Airlines Investment, having 33.4% (Skymark relaunched with ANA sponsorship.). UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, both loyal partners of ANA.

Code-sharing with ANA, which was planned for Winter 2016/2017, has now been indefinitely postponed, as Skymark continues to refuse to adopt ANA's Able-D reservation system. "ANA told us they would not provide overhaul needed to make two grounded 737s airworthy unless we adopt their system," revealed Nobuo Sayama, Chairman of Skymark and biggest shareholder Integral's President, in an interview, adding "Adopting Able-D would virtually place Skymark under the umbrella of ANA; we would lose our freedom of operation and will not be able to maintain independence. We raised our hands to invest in Skymark because we thought Japan would not have any airline that is run independently." Mr. Sayama has already outsourced overhaul on one of the 737s, and is proposing to place an interface between its system and ANA's to enable code-sharing, which has so far been declined by ANA.

Taking up Able-D would essentially relegate Skymark to a de facto puppet of ANA, joining the likes of AIRDO [HD/ADO] (d.b.a. Air Do), Solaseed Air [6J/SNJ], and Star Flyer [7G/SFJ]. The conflict will continue between Integral and ANA as the former's interest lies in keeping Skymark operationally independent until its planned re-listing in 2020, while the latter wants to keep Skymark under its influence for as long as possible to shut out true competition at bread-and-butter Haneda. With Skymark expected to post a full-year profit for FY2015, ending on March 31st, as performance quickly improves and fuel prices continue to be low, code-sharing with ANA would become less of a priority for Skymark and it would only become more difficult for ANA to tame Skymark.

Source: Hokkaido Prefectural Government. (in Japanese)
Source: Skymark Airlines, 2016 February 19th. (in Japanese)
Source: Hokkaido Shimbun, 2016 February 23rd. (in Japanese)
Source: Bloomberg Japan, 2016 March 3rd. (in Japanese)

Skymark to add nonstop Ibaraki – Okinawa.

On January 21st, Skymark Airlines [BC/SKY] announced that it will add Ibaraki [IBR/RJAH] – Okinawa/Naha [OKA/ROAH] nonstop service effective April 28th. The new service will be operated daily using 177-seat Boeing 737-800s. This becomes the first new route launched by the bankrupt airline (Skymark to file for bankruptcy.) since a revamped management was installed by new owners ANA Holdings, parent of All Nippon Airways [NH/ANA], Integral Corporation, and UDS Airlines Invstment (Skymark relaunched with ANA sponsorship.).

Boeing 737-86N(WL) JA73NX at Narita. Skymark completely withdrew from Narita on October 25th, 2014 (Skymark announces Narita closure and Yonago cuts.) after losing the battle against LCCs. It currently operates 26 737s on 16 nonstop routes which mostly originate from its Haneda hub and focus cities at Kobe and Ibaraki. (Photo: Ryosuke Yano)

Japan's third largest airline currently offers a one-stop fly-through product between the two cities via Kobe [UKB/RJBE]. Making it nonstop cuts travel time from four to three hours and 15 minutes. It is not the first time Skymark has experimented with the route, having operated nonstop as a seasonal service in 2012 from July 1st to September 30th and again in 2013 from July 1st to October 26th. The last new route was Sapporo/New Chitose [CTS/RJCC] – Naha, which was inaugurated on January 29th, 2015, though it was suspended only two months later.

Flight Schedule:
Ibaraki – Naha NEW 1 daily with 737-800. (Apr/28-)
BC539 IBR 1900 – 2215 OKA 73H/738 Daily
BC530 OKA 0725 – 0955 IBR 73H/738 Daily

Skymark, which designates Ibaraki as a focus city, is the only domestic airline at the airport, flying to Fukuoka [FUK/RJFF], Kobe, and New Chitose, though operations have been downsized during restructuring (Skymark downsizes Ibaraki from September.). Ibaraki is dubbed the third airport serving the Kanto (Greater Tokyo) region, located 80 kilometers northeast of the capital, and the only LCC-friendly one in the region, boasting landing fees 30-40% lower than Tokyo/Narita [NRT/RJAA] and Tokyo/Haneda [HND/RJTT].

Once post-deregulation's most successful start-up to challenge the ANA/JAL duopoly, it is now controlled by Integral Corporation, which owns 50.1%, ANA Holdings, with 16.5%, and UDS Airlines Investment, having 33.4%. UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, both loyal partners of ANA. Code-sharing with ANA, which was planned for Winter 2016/2017, has now been further postponed, as Skymark continues to refuse to adopt ANA's Able-D reservation system. It would enable code-shares but would essentially relegate Skymark to a de facto puppet of ANA, joining the likes of AIRDO [HD/ADO] (d.b.a. Air Do), Solaseed Air [6J/SNJ], and Star Flyer [7G/SFJ]. Skymark strives to remain operationally independent until its planned re-listing in 2020, while ANA wants to keep it under its influence for as long as possible to shut out true competition at bread-and-butter Haneda.

Source: Skymark Airlines, 2016 January 21st. (in Japanese)
Source: Aviation Wire, 2016 January 21st. (in Japanese)
Source: Yomiuri Shimbun, 2016 January 24th. (in Japanese)

AirAsia Japan CEO to quit, ex-Skymark executives coming.

New AirAsia Japan [DJ] has announced that effective December 1st, CEO Yoshinori Odagiri will resign and Chief Financial Officer (CFO) Osamu Hata, formerly with Dell Japan, will be promoted to succeed the role. AirAsia Group has also confirmed that on the same date, ex-Skymark Airlines' [BC/SKY] executives will join the board, including former Chairman Takashi Ide and President Masakazu Arimori, both of whom stepped down from Japan's bankrupt third largest airline (Skymark to file for bankruptcy.) after a new management was installed by ANA Holdings, parent of All Nippon Airways [NH/ANA], and Integral Corporation (Skymark relaunched with ANA sponsorship.).

New AirAsia Japan's CEO Yoshinori Odagiri (center) poses in front of their maiden aircraft Airbus A320-216(SL) JA01DJ at Chubu Centrair after delivery on October 16th. Osamu Hata will be promoted to CEO while ex-Skymark Airlines Takashi Ide will play the representative role of Chairman. (Photo: Aviation Wire)

AirAsia Group started courting the duo not long after Skymark's board was revamped effective September 29th. They had maintained both official and personal relationships with AirAsia Group CEO Tony Fernandes, and at one time Mr. Ide even envisioned handing Skymark control to Asia's largest LCC group in the long term (ANA and AirAsia bid to save Skymark.). Mr. Ide will become Chairman and Mr. Arimori will become CFO, taking the place of Mr. Hata. The duo has wide and deep knowledge of the domestic market and expertise in running a low-cost operation in Japan's unique economic and regulatory environment. That said, Skymark's success centered around its 36 slot-pairs at regulated Tokyo/Haneda [HND/RJTT] while AirAsia Japan is based at Nagoya/Chubu Centrair [NGO/RJGG], and Skymark has been a purely domestic carrier while AirAsia Japan plans to allocate at least 55% of its capacity to international.

Mr. Odagiri, who also served as CEO with the first AirAsia Japan [JW/WAJ] (CoachFlyer JW8541: NRT - FUK on AirAsia Japan's Airbus A320.), will become Adviser. Although no reason has officially been given, the former ANA veteran is likely stepping down due to conflict of ideas within the board on how the new Japanese unit would be run. Having been founded in July 2014, Japan's fifth LCC has been set back with almost a year's delay in launching operations (AirAsia Japan is officially reborn; first flight June 2015.), largely due to shifting strategy to focus more on the international market rather than domestic, difficulties in recruiting pilots and setting up a maintenance scheme, and much-longer-than-anticipated preparation to apply for an Air Operator's Certificate (AOC), which it obtained on October 6th (New AirAsia Japan receives AOC; takeoff in April 2016.).

In terms of voting rights, the new AirAsia Japan is owned by AirAsia Investment 33%, Rakuten 18%, Noevir Holdings 18%, Alpen 18%, and FinTech Global Trading 13%. Having received an AOC, it took delivery of its first Airbus A320 on October 9th (New AirAsia Japan receives first Airbus A320.) and revealed that operations would start in April 2016 from their Chubu Centrair hub to Sapporo/New Chitose [CTS/RJCC], Sendai [SDJ/RJSS] (New AirAsia Japan mulls Nagoya – Sendai.), and Taipei/Taoyuan [TPE/RCTP]. The original AirAsia Japan ceased operating in October 2013 after the Malaysian parent terminated the joint-venture (JV) with partner ANA due to managerial differences. It has since been relaunched as Vanilla Air [JW/VNL] under full ANA control (Vanilla Air launches operations.).

Source: Aviation Wire, 2015 November 27th. (in Japanese)
Source: Nikkei Shimbun, 2015 November 28th. (in Japanese)
Source: Asahi Shimbun, 2015 November 29th. (in Japanese)
Source: Aviation Wire, 2015 November 30th. (in Japanese)

*Edited/updated on November 30th.  

Skymark relaunched with ANA sponsorship.

On September 29th, bankrupt Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) officially revamped its ownership structure and management. A 100% capital reduction was performed, followed by a 18 billion JPY capital injection together from Integral Corporation, ANA Holdings, and UDS Airlines Investment, which officially became the new owners of the embattled airline, controlling 50.1%, 16.5%, and 33.4%, respectively (Creditors choose ANA/Skymark proposal over Delta/Intrepid.). UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, both now long-time partners of ANA Holdings.

Boeing 737-86N(WL) JA73NJ taxies at New Chitose. Skymark intends to retain a fleet of at least 26 baby Boeings. Can Skymark remain independent? Caught in between the incumbent carriers and new LCCs, what market could it pursue outside its bread-and-butter (for now) Haneda? (Photo: Ryosuke Yano)

The former Skymark management, including Chairman Takashi Ide and President Masakazu Arimori, has been entirely replaced by six new executives. Integral's President Nobuo Sayama has become Chairman and Masahiko Ichie of Development Bank of Japan (DBJ) assumed the role of President. Senior Managing Director is Hideo Yaguchi from OCS, an ANA Holdings cargo subsidiary, who will be responsible for general supervision. Manabu Motohashi, the sole person on the board from within Skymark, is Managing Director and Executive Officer, taking responsibility for management planning, overall control for marketing, and information system. Integral's Shigeki Nishioka has become Director and Executive Officer, overseeing finance, accounting, general affairs, human resources, and listing preparation. ANA's Noriyuki Masukawa has been appointed Director to supervise safety operations.
 
At the same time, Skymark signed a binding code-sharing agreement with rival All Nippon Airways [NH/ANA], subsidiary of the bankrupt carrier's now 16.5% owner ANA Holdings, which is the centerpiece of the struggling airline's corporate rehabilitation plan (Skymark gives in to ANA; Japan reverts to duopoly.). Discussions are being held to implement code-sharing on 13 routes; all but three routes out of Tokyo/Haneda [HND/RJTT] and Sendai [SDJ/RJSS], which is being axed at the end of next month (Skymark to pull out of Sendai in October.). Omitted from Haneda are to Fukuoka [FUK/RJFF], Kagoshima [KOJ/RJFK], and Sapporo/New Chitose [CTS/RJCC], where ANA already commands the lion's share of flights and they learned the Japan Fair Trade Commission is unlikely to give a nod.

"We're working towards starting code-sharing in Winter 2016/2017," said Mr. Sayama, adding "We hope to reveal the outline of code-sharing by mid-October." ANA has been pushing Skymark to adopt their Able-D reservations system, which was also taken up by previous ANA-sponsored airlines AIRDO [HD/ADO] (d.b.a Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ]. However, taking up the system meant pricing needed to have consent from ANA, and all income would go into ANA first and then later be transferred to the airlines, virtually making the three quasi-subsidiaries of ANA. Mr. Sayama has said "Nobody can call that independent, so Skymark can't do that." Outgoing Chairman Mr. Ide had also stated that preserving Skymark's own reservations system, handmade by former President and CEO Shinichi Nishikubo, and modifying it to make it compatible with code-shares, instead of abandoning it and wholly-adopting Able-D, is key to keeping Skymark independent from ANA.

Boeing 737-881(WL) JA75AN takes off from Haneda. Now the ANA group has direct and indirect influence over a dominant 60% of domestic slots at Haneda. With Air Do, Solaseed Air, and Star Flyer having adopted ANA's reservations system and effectively becoming de facto subsidiaries of ANA, a key to Skymark's independence in the long term is to continue using its own platform. (Photo: Ryosuke Yano)

In addition, Skymark reached an agreement with Mizuho Bank for the establishment of a commitment line on September 17th, allowing up to 10 billion JPY in financing. Payments to creditors will commence on November 30th, and those claiming 1 million JPY will receive the entire figure while those claiming more will initially be given 5% of the amount exceeding 1 million JPY. Biggest creditor Intrepid Aviation, which initially sought for 900 million USD (108 billion JPY) for scrapping Airbus 330 leases (Skymark terminates all Airbus A330 leases.) and fought against ANA to sponsor Skymark with Delta Air Lines [DL/DAL] (Intrepid picks Delta to sponsor Skymark.), has compromised at 57.3 billion JPY, while talks are still continuing with Airbus, Rolls-Royce, and CIT Aerospace, which are the second, third, and fourth largest creditors, respectively. A settlement with Airbus and Rolls-Royce is to be watched, as rumors point out to ANA making a backroom deal to purchase three of Skymark's canceled Rolls-Royce-powered A380s and taking options for two more, which prompted the two creditors to make a last-minute sway in favor of ANA's sponsorship over Delta's (Bye-bye Skymark, Hello ANA Airbus A380?).

Mr. Ichie said that no new routes nor route cuts are planned for the following year, after Sendai is axed. The new chief said Skymark will focus more on building loyalty in its communities where it has a relatively stronger brand recognition, such as in Kobe [UKB/RJBE] and Ibaraki [IBR/RJAH]. The fleet will be kept at at least 26 Boeing 737-800s, and whether to renew the lease of the 27th machine, which is expiring in January 2016, is currently being evaluated. Mr. Sayama confirmed that Skymark will retain its current identity even after it emerges from bankruptcy protection, instead of renaming it SKY bee (Skymark hints at new brand: SKY bee?). Both the new and old management agree that Skymark could become quickly profitable and be listed again in three years. Regulator Japan Civil Aviation Bureau (JCAB) has hinted limiting ANA's financial involvement in Skymark to five years to keep competition at Haneda, however, ANA's cozy relationship with the governing Liberal Democratic Party (LDP) could make the winds blow in their favor again.

Skymark's load factors are quickly recovering. Although August is normally a high month as it is the peak summer vacation travel season coupled with Obon homecoming, the bankrupt airline produced load factors exceeding 90% for most Haneda routes. It doesn't directly translate to yields, however, it is nevertheless a positive sign. With the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) currently planning to allocate most, if not all of, new future slots at Haneda to international flights in preparation for the 2020 Tokyo Olympics/Paralympics, its domestic market remains closed off to LCCs, making Skymark the only low-fare option at Japan's most important airport. But what market will Skymark pursue beyond that? It has lost against LCCs on almost every other directly-competing route, and though much lower cost and offering lower fares than ANA or JAL, it has failed to generate demand, which the LCCs have succeeded in doing. Regional international routes within reach of its 737s are also seeing growing competition from LCCs. And with the domestic market shrinking, Haneda is not a safe haven forever.

Finding itself being caught in between the majors and LCCs forced Skymark to boldly (and unsuccessfully) pursue the demand for affordable premium travel, initially in the domestic market with all-premium A330s (Skymark Airlines inaugurates Airbus A330 service.) and in the international long-haul arena with premium-only A380s (Skymark posts loss but optimistic with strategy tweaks.). The A330s were also equipped with full galleys so that it could fly regional international routes as well. However, it was too costly and Skymark failed there. So what future lies for Skymark in the long term?

Source: Aviation Wire, 2015 September 1st. (in Japanese)
Source: Aviation Wire, 2015 September 2nd. (in Japanese) 
Source: Aviation Wire, 2015 September 11th. (in Japanese)
Source: Hokkaido Shimbun, 2015 September 15th. (in Japanese)
Source: Toyo Keizai, 2015 September 17th. (in Japanese)
Source: Toyo Keizai, 2015 September 24th. (in Japanese)
Source: Aviation Wire, 2015 September 29th. (in Japanese)
Source: Skymark Airlines, 2015 September 29th. (in English)
Source: Nikkei Shimbun, 2015 September 29th. (in Japanese)
Source: Aviation Wire, 2015 September 29th. (in Japanese)

Bye-bye Skymark, hello ANA Airbus A380?

ANA Holdings, parent of All Nippon Airways [NH/ANA], has won the bid to lead bankrupt Skymark Airlines' [BC/SKY] rehabilitation process (Creditors choose ANA/Skymark proposal over Delta/Intrepid.). It was a landslide victory for Japan's already largest carrier, garnering 78% votes in terms of the number of creditors and 60.25% in terms of the amount of Skymark's liabilities, fulfilling both conditions.

But at least the latter was widely speculated to be a Delta/Intrepid victory (Intrepid picks Delta to sponsor Skymark.), as creditors Airbus, Rolls-Royce, and CIT Aerospace, accounting for 29%, 16%, and 14%, respectively (Skymark's total debts skyrocket to 300 billion JPY.), were all opposed to ANA involvement at least until very recently (Airbus and Intrepid to reject ANA/Skymark tie-up.). With Intrepid claiming 38%, just one of the three creditors supporting the Delta Air Lines [DL/DAL]-led scheme would have given them a win in terms of proportions of liabilities, prompting another round of vote within two-months. So how did ANA win the support of the three key players in the last few days?

Airbus A380-841 F-WWSL/JA380A at Toulouse. Two of Skymark's have been completed while the third has partially been built. 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)

During the last days of July, "ANA made a promise with Airbus to place a significant future order, carefully couched so as not to trigger a disclosure requirement," said an ANA official close to the matter who asked not to be named. That order includes acquiring three displaced A380s initially ordered by Japan's embattled third largest airline (Skymark's Airbus A380 order in jeopardy.), and taking options for two more. Two aircraft have been completed and are currently stored at Toulouse/Blagnac [TLS/LFBO], with a third partially finished. Rolls-Royce Trent 900s power the super-jumbos, and hence Rolls-Royce's defect to ANA as well.

Airbus initially supported ANA as they had earlier talked positively about inducting Skymark's A380s, but then sided with Delta/Intrepid after ANA scrapped the talks a few weeks later saying plans had changed. Intrepid also supported ANA in the first place, as a non-binding Letter of Intent (LoI) was signed for ANA to lease Skymark's A330s (Skymark terminates all Airbus A330 leases.). But ANA also canceled it just a few weeks later, causing outrage at Intrepid and prompting the U.S.-based aircraft lessor to come up with their own rehabilitation plan for Skymark that eventually lured Delta as its sponsor. So this time around, ANA couldn't have gained Airbus and Rolls-Royce's support without a binding agreement. According to the same source, ANA will release plans for the A380 "when the time is appropriate."

The next question is why did CIT Aerospace support ANA? Delta is a big customer for CIT, while ANA has no record of having business with them. What is known from multiple sources is that ANA pledged to lease aircraft from them in the near future. Rumors say that Japan's largest carrier talked of an idea to lease some, if not all three of CIT's A330s that were destined for Skymark, and place them in service with ANA's wholly-owned subsidiary LCC Vanilla Air [JW/VNL] for Hawaii services. However, how much reliability this rumor has is unsure, as at least one of CIT's ex-Skymark A330s seems to have found a new operator in Spain with Air Europa [UX/AEA].

Boeing 737-8HX(WL) JA73NA. Now how much independence Skymark would be able to retain is up to Integral. But adopting ANA's reservation system is a double-edged sword. Skymark's stable income would be assured by ANA, but they would forever become a slave of Japan's largest carrier, as with Air Do, Solaseed Air, and Star Flyer. (Photo: Aviation Wire)

For Skymark, it would be a very bitter end to its challenge against the ANA/JAL duopoly (Skymark gives in to ANA; Japan reverts to duopoly.). Paper-wise, ANA will only control 16.5% with Integral Corporation holding 50.1% and UDS Airlines Investment 33.4%. However, UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, both loyal ANA partners. Six executives will sit on the board and Integral will select three, but ANA two, and UDS one; Integral's President Nobuo Sayama will take the Chairman's seat but DBJ's former Managing Director Masahiko Ichie, a strong ANA ally, will become President.

And the centerpiece of the ANA/Skymark plan is an extensive code-share. Skymark's current reservations system developed by former hands-on President and CEO Shinichi Nishikubo cannot handle any code-shares, and Skymark will most likely adopt ANA's system. An official of the regulating Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) has quoted it as "an addictive poison," as it allows ANA to access Skymark's entire ticket sales data, including pricing policy and reservation rates. But for Skymark, developing an all-new system would be too costly. ANA's other de facto puppet carriers AIRDO [HD/ADO] (d.b.a. Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ] all share ANA's system. Skymark's network will gradually be aligned to complement that of ANA's, essentially stopping short of a takeover.

Regulator MLIT knows competition is necessary. But for now, the ruling Liberal Democrat Party (LDP) sits on top of them. The LDP is said to have pressured ANA to accept A380s so that Skymark remain in Japanese (ANA) hands. In return, the regime is rumored to have unofficially promised to give ANA the lion's share of new slot-pairs at Haneda when the next expansion comes before the 2020 Olympics/Paralympics. A fifth runway is far-fetched, and the MLIT is currently talking with local authorities to allow aircraft to overfly densely-populated business and residential areas, which could create up to 50 more slot-pairs per day. Conservative LDP supports ANA in order to dilute JAL's remarkable comeback as it was bailed out when the opposing Democratic Party of Japan (DPJ) was at helm. Foreign involvement is out of question, at least at Haneda. The LDP is determined to protect ANA, and to a lesser extent JAL.

Welcome to Japan. Here we go back in time with the two incumbents ANA/JAL and its affiliates controlling 100% of the Haneda market and 97% of the entire domestic market. And at the preferred downtown Tokyo airport, ANA would already command the lion's share of domestic slots, having direct/indirect control over 60% when combined with de facto subsidiaries Air Do, Skymark, Solaseed Air, and Star Flyer, with JAL accounting for the remaining 40%. Sadly for the ordinary flyer, the incumbent government prefers a closed market, benefiting selected powers at the expense of the interest of the flying public and broader industry evolution. The government should stop toying with aviation politics.

Source: Nikkei Shimbun, August 6th. (in Japanese)
Source: Aviation Wire, August 6th. (in Japanese)
Source: Aviation Wire, August 6th. (in Japanese)
Source: Nikkei Shimbun, August 6th. (in Japanese)

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)