Skymark $612 Million Airport Slot Is Path From Bankruptcy

Skymark Airlines Inc. may have filed for bankruptcy and seen its passenger numbers dwindle. It still holds an asset worth about $612 million in annual revenue that offers a path out of bankruptcy.

The Japanese budget airline has 36 take off and landing slots for local service from Haneda airport, or 8 percent of the rights there. One slot for domestic flights at the Tokyo airfield probably generates about 2 billion yen ($17 million) in sales annually, according to Hiroshi Hasegawa, an analyst at SMBC Nikko Securities Inc. in Tokyo.

Owning the third-most landing rights at Asia’s second-busiest airport could help Skymark attract a partner to lift the company out of bankruptcy, where it landed last month with 71 billion yen of liabilities. Integral Corp., the private-equity fund that’s helping the ailing carrier, has promised to hold on to all the Haneda slots and trim operating costs to turn the Tokyo-based airline profitable.

Rights to Haneda, close to the center of Tokyo, are lucrative for airlines because they give passengers a more convenient alternative to Narita airport, an hour’s ride from Tokyo by an express train. With 46 landings and takeoffs every hour, Haneda is the preferred location for business travelers and is the world’s fourth-busiest aerodrome, according to the International Air Transport Association.

“The most valuable assets they have would be the slots in Haneda,” said Shukor Yusof, founder of aviation research firm Endau Analytics. “Those are not easy to come by. They have a chance to re-emerge as a leaner airline.”

Skymark was down 24% to 19 yen per share as of 11:32 a.m. in Tokyo, its lowest level since Feb. 2.

Haneda Demand

Skymark, which aims to have a business recovery plan in place by the end of May, trails the nation’s two biggest carriers in landing slots at Haneda. Japan Airlines Co. has 40 percent and ANA Holdings Inc. 37 percent, according to the transport ministry.

Nearly twice as many travelers now pass through Haneda as through Narita, 70 kilometers (40 miles) east of Tokyo, according to the IATA data. Skymark’s low-cost-carrier rivals -- including Peach Aviation Ltd., Spring Airlines and Jetstar Japan Co. -- operate from Narita, according to the CAPA Centre for Aviation.

Peach, 39 percent owned by ANA, has indicated it would like to use nighttime international slots at Haneda, according to CAPA.

“It was inevitable the new LCCs would aspire to fly from Haneda,” CAPA said in a Jan. 30 report. Though it will be a while before the budget carriers are able to get daytime slots there, their push “makes Skymark’s turnaround all the more imperative.”

Recovery Plan

Last month’s bankruptcy filing wiped out more than 90 percent of Skymark’s market value amid concerns that the company might not have enough cash to meet a penalty for six canceled Airbus Group NV A380 planes, worth $2.5 billion in list prices. Skymark also has struggled to fill planes, prompting it to halt some flights and cease all its Narita operations. The stock will be delisted March 1.

Along with the bankruptcy filing, Skymark President Shinichi Nishikubo stepped down Jan. 28 and was replaced by Chief Financial Officer Masakazu Arimori.

On Thursday, the company said it was withdrawing its forecasts for this fiscal year while continuing to work on the restructuring plan. It also said it was still discussing with Airbus how much of a fine the carrier would have to pay for the canceled planes.

If creditors approve, Skymark’s recovery plan would be implemented by the end of July, according to a note for participants at a Feb. 4 meeting in Tokyo. The carrier will get restructuring support from private-equity firm Integral.

Integral partner Nobuo Sayama said in a Feb. 10 interview in Tokyo that if necessary the firm can invest even more than the 9 billion yen it has already pledged for Skymark.

Integral’s End-Game

After the restructuring, Integral would consider relisting Skymark or selling it outright, Sayama said. The fund is seeking capital and business support for Skymark from various sectors, Sayama said.

“This is going to be a relatively long investment,” Sayama said. “We need to find options which Skymark employees are happy with.”

Skymark first flagged in July that it might not be able to stay in business after Airbus canceled the A380 order -- having questioned Skymark’s ability to pay for the planes -- and demanded a penalty payment. Skymark reduced its fleet and sought tie ups with JAL and ANA in an unsuccessful attempt to avoid bankruptcy.

“Skymark is trying to shrink into profitability, unwinding the expansion that ruptured their core business and provided no insulation from A380 costs,” CAPA’s Horton said.

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