Friday, August 7, 2015

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)


  1. So in your personal opinion, do you think ana will actually take the a380? Also thank you for all theses wonderful postings. I am a big fan of your website.

    1. Thank you for your thoughtful words. All rumors and fingers point at ANA making a binding promise for A380s, and that's the most logical explanation behind Airbus and RR's last-minute sway to ANA; enough 787/777s on order for that segment so A330/350 unlikely, and while more A320 orders are possible, that could have come from Delta as well. An A380 order is the only possible factor Delta couldn't better ANA.

      But will ANA really fly the A380? I'm not sure. ANA (along with many others) has opted for more frequencies with 777/787/767-sized planes, and the A380 certainly goes against its plan, especially when they have a split hub at HND and NRT. HND is politically not allowed to accept A380s (to protect NRT and ANA/JAL), but ANA's cozy relationship with the current government may change that if they ask for it. Another possibility is ANA may just dismantle the A380s for spare parts for sale to other carriers. It may seem absurd, but ANA has deep pockets, and they are determined to do whatever they can to keep true competition out of HND and protect its lucrative domestic market.