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 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)

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)

ANA/Skymark and Intrepid battle for creditors' votes.

On July 7th, bankrupt Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) and ANA Holdings, parent of All Nippon Airways [NH/ANA], jointly held a closed meeting for creditors to persuade them to endorse the ANA-backed rehabilitation plan (Skymark gives in to ANA; Japan reverts to duopoly.) on August 5th, when the voting will take place. On June 15th, the Tokyo District Court approved both the ANA-sponsored proposal and the rival plan submitted by creditor Intrepid Aviation which does not involve Japan's largest airline (Skymark/ANA and Intrepid both given go-ahead by court.).

Boeing 737-82Y(WL) JA737Z arrives at Haneda, where Skymark controls 36 lucrative slot-pairs. Adding Skymark to ANA's portfolio of de facto puppets 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 would effectively bring back duopoly to Japan's most important airport, virtually wiping out competition. (Photo: Ryosuke Yano)

Both proposals call for a 18 billion JPY injection, however, the ANA/Skymark scheme proposes Integral Corporation to contribute 50.1%, UDS Airlines Investment 33.4%, and ANA Holdings 16.5%, while the Intrepid plan would have Integral pay the entire 100% and the unnamed non-Japanese airline partner would assist through a non-investment sponsorship. This would avoid any political obstacles, as the government is still uncomfortable about foreign ownership of domestic airlines holding Tokyo/Haneda [HND/RJTT] slots. Meanwhile, UDS is jointly owned by ANA's long-time partner financial firms Development Bank of Japan and Sumitomo Mitsui Banking, so the ANA/Skymark proposal translates to ANA virtually controlling 49.1%.

Nobuo Sayama, President of investment firm Integral Corporation, and Toyoyuki Nagamine, Senior Executive Officer of ANA, reportedly reiterated the details and called for creditors' support, criticizing the rival proposal submitted by creditor Intrepid (Skymark and Intrepid submit rivaling revival plans.) as being unrealistic, having not decided on an airline sponsor as of yet. Asked by creditors whether the embattled carrier would lose its role as Japan's third force through an ANA sponsorship, Mr. Nagamine responded "Skymark will decide fares, routes, and frequencies on their own, so their independence is assured. I don't think an overseas carrier can provide the quality of support ANA can." However, Mr. Sayama said "We made a binding agreement with ANA, so we must execute that," 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.

Intrepid will also hold a similar meeting on July 15th to convince creditors that its proposal without ANA involvement would keep Skymark as the third force fully independent from the incumbents. It is also boasting the likelihood of a higher repayment rate, as the yet-to-be-named airline sponsor would take Skymark's displaced Airbus A330s (Skymark terminates all Airbus A330 leases.), which would greatly reduce the debt they owe Intrepid. Although Delta Air Lines [DL/DAL] has so far been the only disclosed candidate, the aircraft leasing firm says it has narrowed down the number of potential sponsors to two, saying they are (1) premier international carriers, (2) established in the Japan market, and (3) committed to Skymark's independence and growth as Japan's third force. Is it AirAsia [AK/AXM] (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.) and Delta? Will Intrepid reveal the sponsor on July 15th?

Attending the ANA/Skymark meeting were 134 representatives from 80 creditors, from a total of 197. At the August 5th creditors' vote, 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, Airbus (Skymark's Airbus A380 order in jeopardy.), Rolls-Royce, and CIT Aerospace claiming approximately 38%, 29%, 16%, and 14% of Skymark's debt, respectively (Skymark's total debts skyrocket to 300 billion JPY.), the decision of the second, third, and fourth largest creditors is crucial. However, it is unlikely the three will reveal its preference until the last minute to let the two plans compete and squeeze out the best deal (repayment rate) possible. If neither proposal garners enough tallies to meet the requirement, another vote will be held within two months.

Source: Jiji Press, July 7th. (in Japanese)
Source: NHK, July 7th. (in Japanese)
Source: Nikkei Shimbun, July 7th. (in Japanese)
Source: Aviation Wire, July 7th. (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 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.

Integral: Keeping Skymark the third force not priority.

On February 5th, Skymark Airlines [BC/SKY] announced that they had reached an agreement with Integral Corporation to restructure Japan's bankrupt third largest carrier (Skymark to file for bankruptcy.). The investment fund will finance 9 billion JPY under a debt-equity swap scheme, where Integral would become a shareholder once Skymark, which will be de-listed on March 1st, makes it to a listed airline again. 3 billion JPY will be used immediately to pay for overdue landing fees at Tokyo/Haneda [HND/RJTT].

Boeing 737-8HX(WL) JA73NH taxies at Fukuoka. The aircraft was returned to lessor Aviation Capital Group as N381AG in January. Skymark's fleet was standardized on 27 737s effective February 1st. (Photo: Ryosuke Yano)

"It's not a short-term investment; we're fully committed," said Integral's Director Nobuo Sayama, who revealed that four staff have already been dispatched to Skymark to help come up with a company rehabilitation plan that needs to be submitted to the Tokyo District Court by May 29th. Regarding sponsors (Skymark seeks investor airline; scraps ANA & JAL dual tie-up.), Mr. Sayama said "We're looking from a broad range."

Asked whether Skymark was still committed to retaining its position as Japan's third force, with no financial affiliation with All Nippon Airways [NH/ANA] nor Japan Airlines [JL/JAL], Mr. Sayama replied "That is not necessarily our priority," adding that restructuring the airline and putting it on a road to profitability within a year is. This virtually confirms that likelihood of an ANA investment is getting higher (Running out of time: Will Skymark join ANA?), as JAL remains prohibited from making any major investments until April 2017.

Code-sharing with other domestic carriers such as ANA and JAL (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.) "has merits, and we are evaluating it in a positive way," Mr. Sayama added. Skymark quickly grounded their entire Airbus A330 fleet (Skymark Airbus A330 operates last revenue flight.) on January 31st, and President and Representative Director Masakazu Arimori revealed that load factor for the Haneda – Fukuoka [FUK/RJFF] route is back to exceeding 90% for February so far. Frequencies were also cut on a number of secondary routes (Skymark to cut 15% of flights, ground all Airbus A330s.).

Meanwhile, former President and CEO Shinichi Nishikubo's control of Skymark's shares has decreased to 9.78%, according to an ownership change report submitted by the airline to Japan's Ministry of Finance. The charismatic ex-leader had been the biggest shareholder holding 30.57%, however, 18.98 million stocks are believed to have been sold off between February 2nd and 4th for approximately 400 million JPY total.

Source: Skymark Airlines, February 5th. (in Japanese)
Source: Aviation Wire, February 6th. (in Japanese)
Source: Nikkei Shimbun, February 6th. (in Japanese)

*Edited/updated on February 7th.