April 22, 2015

ANA to take 19.9% stake in bankrupt budget airline Skymark

On the 29th January this year Japan’s Skylark Airlines filed for bankruptcy protection after it plans to challenge Japan’s two major carriers, Japan Airlines (JAL) and All Nippon Airways (ANA) failed. Skylark Airlines was formed in 1998 and had aimed to shake up the Japanese air industry by offering low cost flights. However a combination of events saw Japan’s third-largest carrier fail in its attempts to grow its market share. A fall in the value of the Japanese yen saw the costs of overseas purchases such as fuel and financing of aircraft skyrocket and Skymark had no hedging in place against devaluation of the yen. In July 2014 Skymark were forced to cancel an order for 6 Airbus A380s, which then saw them slapped with a US$700m cancellation fee. On top of this, other airlines, including Qantas and AirAsia had begun to operate low-cost flights in Japan, leaving Skymark Airlines with a niche market that was totally unprofitable.
ANA has now announced it is to buy a 19.9% stake in the bankrupt airline through Integral, a private Japanese equity firm who has been keeping Skymark operational since it filed for bankruptcy protection. ANA has been keen to invest in Skymark so that it can gain access to a number of the company’s coveted landing slots, enabling it to remain ahead of its principal competitor, JAL. However it is keeping its stake below 20% to avoid having to forego slots at Haneda airport as would be required by Japanese regulators – ANA and its affiliates already hold over half of the 486 slots at the airport.
The hope is that with ANA’s input, plus other investors, Integral will be left holding a 50% stake in Skymark and, in turn, Skymark can receive a JPY¥18 billion (USD$150 million) equity payment with the intention of relisting the airline on the Japanese stock market within the next five years. It was back in January 2010 that JAL itself filed for bankruptcy protection, so that airline is proof that filing for bankruptcy protection is not necessarily the end of the road for Skymark, though it is unlikely the carrier will be offering low-cost flights, thus allowing ANA and JAL to strengthen their grip on the Japanese market.



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