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Different interests among stakeholders complicate Skymark’s turnaround

  • 2015-03-10 15:00:00
  • , Nikkei
  • Translation

(Nikkei: March 10, 2015 – p. 13)

 

 Skymark on March 9 entered full negotiations with companies that have placed their bids to sponsor its rehabilitation, but its road to turnaround is becoming bumpy, as they display different interests. The selection of sponsors is its first step toward rehabilitation. Though it had initially sought to find sponsors by February, the process may extend till the end of this month, suggesting that it is already facing a crucial test to stay afloat.

 

 “We hope to select sponsors by the end of this month, as we have yet to flesh out the conditions to make a decision,” said a Skymark official. Soon after the airline entered the court-led rehabilitation process on Feb. 4, it signed a sponsor contract with Integral, a Tokyo-based investment fund. The partners have been working on the selection of sponsors since then.

 

 More than 20 companies, including airlines, travel agencies, financial institutions and trading houses, have placed bids for Skymark’s sponsorship and presented their turnaround proposals. After finishing questions and answer sessions with them last week, the carrier began negotiations with individual candidates on March 9. But the selection seems not so easy. In particular, selecting airlines is expected to become difficult as the process determines its course for turnaround.

 

 Frustration mounted within Skymark when it looked into ANA Holdings’ proposal. Japan’s largest airline appears to have proposed that it reduce its B737 fleet from the current 27 planes to around 20. It has also called for a drastic cut in domestic services, recommending the company start afresh as a small carrier.

 

 To ensure fair competition in the aviation sector, the Ministry of Land, Infrastructure and Transport (MLIT) plans to introduce a time limit if ANA Holdings invests in Skymark. ANA is growing cautious, because its aid to Japan’s third largest airline may eventually help turn the company into a future rival. It also reckons that a cut in the B737 fleet could end up forcing Skymark to give up its money-making landing spots for domestic services in and out of Tokyo’s Haneda airport.

 

 AirAsia, a Malaysia low-cost carrier, is looking to re-enter the Japanese aviation market by helping Skymark with a turnaround after scrapping its partnership with ANA Holdings in 2013. It has already set up a new company with Rakuten and others to re-launch domestic services in Japan, but it needs to overcome various hurdles, such as securing pilots.

 

 AirAsia has allegedly proposed a plan to merge its Japanese affiliate with Skymark in the future.

 

 But the MLIT remains cautious about awarding Haneda-bound domestic services to budget airlines. That makes it difficult for AirAsia to win the government approval.

 

 It is also reported that American Airlines has been in talks with Skymark. But that has raised the hackles of Japan Airlines due to their partnership. It appears that the American carrier will consider extending support after the Japanese company decides on a turnaround plan.

 

 Delta Air Lines is also said to be looking into the possibility of forging a partnership with Skymark over domestic services after a turnaround plan is finalized.

 

 At this moment, Skymark has not warmed to any of airlines’ proposals. “We are willing to consider a proposal if it looks attractive, but Skymark can get back on its own feet without help from other airlines,” said Nobuo Sayama, a partner at Integral.

 

 But a turnaround plan will not be approved without the consent of Airbus and Interpid Aviation, Skymark’s major creditors. The cancellation fee that the European aerospace manufacturer charges against the Japanese company over A380 superjumbos is still up in the air. Interpid, meanwhile, is Skymark’s largest aircraft lessor, which leases seven A330 planes. The two companies are displaying a strong interest in Skymark’s turnaround, as it involves aircraft leasing and loans. Airlines have strong influence over aircraft purchases. It remains unseen whether Skymark can win their consent with a plan not backed by airlines.

 

 Last weekend, Skymark held a behind-the-scenes meeting with AirBus, Intrepid and ANA Holdings. It currently puts all of its five A330 fleet out of service to cut costs. ANA encourages the use of the A330 in its turnaround proposal. But according to sources familiar with the matter, when Skymark hinted at terminating the use of the A330 at the meeting, Airbus reacted harshly. “We won’t approve the A330’s going out of service,” said an Airbus official.

 

 To pull off a turnaround, Skymark needs to unravel tangled interests within stakeholders.

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