January 29, 2015
After months of struggling, Skymark Airlines eventually files for bankruptcy protection
It was on the 29th July 2014 that alarm bells started to ring for the future of Japan’s Skymark Airlines Inc. when it announced it was struggling over negotiations with Airbus SAS over their order for six A380 jets. The order had been signed in 2011 at a cost of 191.6bn Yen (US$1.88bn) and Skymark was keen to renegotiate the price based on the airlines struggle against competition from JAL and ANA, plus the falling value of the Yen. Though fearful of Airbus’ hefty penalties that might be incurred for breach of contract, Airbus simply cancelled the order and instead began legal proceedings against Skymark over unpaid deposits, though classed as a US$700m cancellation fee. Unlike JAL and ANA, Skymark had no hedge defense against sharp rate drops in the yen and while aiming to capture the low-cost element of the Japanese market, had suffered heavily in that sector with competition from Malaysia’s AirAsia and Australia’s Qantas. Skymark then also flagged it had doubts about its ability to continue trading, citing problems paying Airbus. In September Skymark warned of an anticipated annual loss of 13.7bn Yen (US$115m) for the year to March 2015, as opposed to a previously anticipated profit of 354m Yen (US$3m.) Curiously, back in 2010 Skymark surprised the airline industry when placing an original order with Airbus for four A380 aircraft, while aggressively hiring pilots from JAL which was itself undergoing restructuring then subsequent to filing for bankruptcy protection.
On Tuesday of this week Skymark Airlines finally waved the white flag and filed for protection from creditors with liabilities of 71.09bn Yen (US$603.6m.) Board member Masakazu Arimori has taken over from Chief executive Shinichi Nishikubo, who has resigned from the board with immediate effect. Skymark has made it clear that while the company will be delisted from the Tokyo stock exchange on the 1st March, the Tokyo-based private equity firm Integral has agreed to provide financing to assist the airline in restructuring, subject to court approval.
The Airbus debacle began with Nishibuko, an internet entrepreneur, deciding to take on the likes of JAL and ANA by intending to offer cut-price fares on the lucrative routes to destinations such as New York, despite struggling with rising running costs. The airline’s demise will now see the vultures circling the carcass as Skymark has 36 landing slots at Tokyo’s crowded Haneda airport, JAL currently holding 184.5 and ANA, together with its subsidiaries, holding roughly half of the 465 slots. In December Skymark made it clear it would hold talks with JAL and ANA on code-share flights while seeking more funds from investors.