Jan 30, 2015

Skymark Airlines Files for Bankruptcy

Negotiation over the cancellation penalty on A380 aircraft purchase agreement is one of factors that had lead to deterioration of Skymark's financial base. (photo is composite)

On Jan. 28, Skymark Airlines filed for civil rehabilitation proceedings in Tokyo District Court. Because of an increase in the burden of paying its dollar-denominated leases due to the rapid depreciation of the yen, intensified competition with low cost carriers and negotiations with Airbus S.A.S on the purchase price of Airbus A380 aircraft, it was feared that the company's financial situation would worsen further.

Skymark gave up plans for self-resuscitation and it was delisted from the stock market on March 1. Its total debt comes to some Y71,088 million. On Jan. 28, Shinichi Nishikubo stepped down the CEO position. The airline will continue flight operation with financial assistance.

At the board meeting that was held at 7:00 am on Jan. 28, the directors voted to file for bankruptcy. The company will receive assistance with funding, improving its balance sheet and management from investment firm Integral Corporation (headquartered in Tokyo).

Skymark was established in November 1996 and capitalized at Y14.2 billion. The company has issued 91,344,200 shares of common stock. It had 29,984 shareholders as of Sept. 30, 2014. Among major investors, former CEO Shinichi Nishikubo holds 30.56%, H.I.S. Co. has 6.49% and Yamasa Co. 4.56%.

The business result of the company for fiscal 2013 (ended at March 2014) posted sales of Y85.9 billion, almost flat from the previous year; operating loss of Y2,506 billion (compared to profit of Y4,674 million in fiscal 2012); ordinary loss of Y403 million yen (profit of Y8,091 million); and net loss of Y1,845 million (profit of Y3,778 billion). Skymark had used 10 units of leased Airbus A330 aircraft from June 2012, but with the precipitous weakening of the yen, the burden of paying its dollar-denominated leasing fees grew. It fell into unprofitability because of intensified competition with low cost carriers and prolonged expensive fuel costs, among other factors.

Skymark then worked to reduce the costs by suspending service on unprofitable routes. However, it posted a net loss of Y5,744 million for the period from April to September 2014 (in 2013 it was Y1,702 million profit for the same period) and it is anticipated a net loss of Y13.6 billion for fiscal 2014 (ending in March 2015).

Negotiations surrounding penalties for the cancellation or breach of contract relating to the A380 deal were one cause. In February 2011, Skymark entered into a contract to purchase six A380s. But the negotiations with Airbus regarding payment of the agreed purchase price and other matters did not go smoothly. On July 25, 2014, Skymark received a termination notice of the contract from Airbus and a demand for $700 million (some Y83 billion) cancellation fee. Skymark is negotiating in a bid to reduce the penalties, claiming that the amount is unreasonable. However, it is feared that if it has no choice but pay the said amount, its financial situation will worsen. Against the backdrop of such an environment, the company decided that independent reconstruction would be difficult.

On Jan. 28, Shinichi Nishikubo resigned from the company, including his role as an executive officer. On the same day, Takashi Ide, chairman of the board of directors, became CEO, and Director Masakazu Arimori became president and representative director.

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