Thursday, October 30, 2014

Skymark braces for 13.7 billion JPY loss in FY2014.

On October 30th, Skymark Airlines (BC/SKY) announced that they predict a whopping 13.7 billion JPY net loss, its worst ever financial record, for FY2014, reversing a previous forecast for a 354 million JPY net profit. Talks with Airbus regarding the settlement for Skymark's cancellation of the A380 order (Skymark hopes to settle Airbus A380 penalty in October.) have also not bore fruit yet and will continue into November.
Boeing 737-8FZ(WL) JA737U ONE PIECE JET arrives from Naha operating BC858 on October 25th as the final Skymark flight into Narita, ending a three-year presence at the airport. The airline will now concentrate on increasing revenue in its core Haneda market. (Photo: Aviation Wire)

Japan's third largest carrier cites increase in costs due to the introduction of the all-premium 271-seat Airbus A330s (Skymark Airlines inaugurates Airbus A330 service.), continued depreciation of the JPY, fuel costs remaining high, and intensified competition with the LCCs as the primary reasons. Skymark hopes to bring up revenue per passenger with the A330, and "Reservations-wise, we're gradually getting there," told Masakazu Arimori, Director of the carrier. The European widebody twin-jets have so far brought a 9.1% increase in capacity over last year, but passenger revenue has decreased 1.4%.

Total assets stood at 77.5 billion JPY, down 1.3 billion JPY from March this year. Capital-to-asset ration decreased from 56.2% in FY2013 to 49.7%. Cash reserves dwindled to 4.5 billion JPY, down 2.5 billion JPY from half a year ago. Skymark will look for loans and also sell off engines (and lease them back), a flight simulator, and other assets to raise cash. Meanwhile, it will continue to rent a hangar at Haneda to carry out a Flight Hour Services (FHS) maintenance deal reached with Airbus in November 2013. Fleet-wise, two Boeing 737-800s, which became surplus after their withdrawal from Narita (Skymark announces Narita closure and Yonago cuts.), will be returned to lessors early, in November and March, respectively, bringing down the number of 737s to 27.

Skymark repeatedly stressed that if they are obliged to pay a hefty penalty for the A380 order termination, the amount of which was originally rumored to be around 700 million USD, there would be "material uncertainty" over whether the company could remain a going concern. They have already paid pre-deposits worth 26.5 billion JPY, more than the airline's market value, but Airbus does not need to refund this and will therefore unlikely do so. The European planemaker would obviously want to make sure they don't lose money, so a buyer for the already completed two airframes (plus a third under assembly) would probably have to be found first.

Reference: Skymark Airlines, October 30th. (PDF; in Japanese)
Reference: Aviation Wire, October 30th. (in Japanese)

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