Skymark Files for Bankruptcy After Failed Airbus A380 Deal

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Skymark Airlines Aircraft
A Skymark Airlines Inc. aircraft takes off at Haneda Airport in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Skymark Airlines Inc., Japan’s third-largest carrier, filed for bankruptcy protection after running short of cash, highlighting the failure of growth plans that climaxed in the ill-fated purchase of six Airbus Group NV A380 superjumbos.

Skymark filed at the Tokyo District Court with 71 billion yen ($603 million) in liabilities, the carrier said in a statement. President Shinichi Nishikubo is standing down and Chief Financial Officer Masakazu Arimori is taking on the role. It will be delisted on March 1, the Tokyo Stock Exchange said.

Shares of the budget carrier were untraded at the open in Tokyo after sell offers outnumbered bids by about 500 to 1.

The low-cost carrier, which will get restructuring support from private-equity firm Integral, first flagged in July that there was “material uncertainty” over whether it would remain a going concern following penalty demands for the cancellation of the A380 contracts. Doubts about its ability to fund the planes had led Airbus to terminate the order worth $2.5 billion in list prices.

“A low load factor led to a sustained cash outflow amid an already strained cash position,” Masaharu Hirokane, an analyst at Nomura Holdings Inc. in Tokyo said in a note dated yesterday. “Key to improving earnings will be the early return of leased aircraft and other moves to downsize to an operation capable of generating stable profits.”

Earnings Postponed

An earnings report due today has been postponed to Feb. 5, spokeswoman Yuka Izumaru said by phone. The airline will hold a news conference at 11 a.m. in Tokyo.

Skymark had announced plans to buy the world’s largest passenger model and start an international business-class service in 2010, breaking from a discount model using Boeing Co. 737 narrow-bodies. Nishikubo said at the time he planned to win market share by charging less than half the price of rivals.

The application from Tokyo-based Skymark, which had 2,275 employees as of last March, comes five years after Japan Airlines Corp. became the first major Asia flag-carrier to file for bankruptcy, seeking protection from creditors with 2.32 trillion yen in liabilities. JAL successfully re-listed in 2012.

Airbus said today it was aware of the Skymark filing, which was a matter for the courts. After the sides failed to reach a deal on the A380s the planemaker filed a complaint in a London court, the contents of which haven’t yet been made public.

Unprofitable

Skymark had a net loss of 5.7 billion yen in the six months through September amid tougher competition, the cost of introducing leased Airbus A330s, and a weaker yen. It had 4.5 billion yen in cash and near-cash items as of Sept. 30, down 75 percent on a year earlier, based on data compiled by Bloomberg.

Skymark said in October it planned to halt unprofitable flights from Tokyo Narita airport and return two leased planes from November. The airline said it would also sell and lease back engines, a flight simulator and other assets.

Skymark had also sought a tie up with JAL and ANA Holdings Inc. to continue operations, and said last month it was considering selling shares to an investment fund to raise cash.

Skymark had already paid 26.5 billion yen in pre-delivery charges for the double-deckers, including money to the engine supplier, it said in July. It could face demands for as much as 70 billion yen in penalties, Kyodo News reported at the time, citing people familiar with the situation that it didn’t name. Airbus terminated the A380 order and with it lost its sole superjumbo deal in Japan.

Skymark initially signed a firm contract for four A380s in 2011 and later came back for two more. Airbus said last April that the carrier’s first plane had flown and was heading for cabin installation and final painting in Germany.

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