ANA offers lifeline to rival Skymark

Japan's biggest carrier ANA Holdings has provided a lifeline to bankrupt rival Skymark Airlines in a deal that will give it access to lucrative landing slots but raises questions over the industry's competitiveness.

Under the agreement announced on Wednesday, ANA will buy a stake of up to 19.9 per cent in Skymark, while Integral, a Japanese private equity fund, will take 50.1 per cent. The total investment by the two companies and other stakeholders is expected to reach Y18bn ($150m).

The investors said they aimed to relist Skymark shares within the next five years.

Founded in 1998, Skymark was the first major budget carrier to challenge the duopoly in Japan held by Japan Airlines and All Nippon Airways. But an aggressive expansion policy forced the country's third-largest carrier to file for bankruptcy protection in January this year, saddled with more than $600m of debts.

Its fortunes took a turn for the worse following expensive purchases including six Airbus A380 superjumbos in 2011, which drowned the carrier in losses after the yen's steep slide pushed up its US dollar-denominated costs.

In July, Airbus cancelled Skymark's order for the A380s due to concerns over its ability to pay, and demanded a $700m cancellation fee.

While executives did not comment on what they would do with the A380 orders, Toyoyuki Nagamine, ANA's senior vice-president, said ANA would "support future negotiations" with Airbus and lease companies.

The agreement ended months of squabbling over who should bankroll Skymark's turnround. Executives at both Skymark and Integral had initially expressed opposition to receiving funding from a rival carrier, saying they wanted to protect Skymark's independence.

But Skymark's creditors demanded the help of an airline, while Integral needed the know-how to rebuild a carrier. JAL, which also emerged from bankruptcy protection in 2011, is prevented by government rules from investing in another carrier, although it expressed interest in forming a business tie-up with Skymark.

"We can maintain our position as the 'third force'. We decided ANA's proposal was the best one," said Takashi Ide, Skymark chairman.

For ANA, the deal would boost its competitiveness after a government-sponsored turnround of JAL strengthened the rival's balance sheet and financial capability to buy new aircraft.

It would also give ANA access to 36 landing slots that Skymark holds at Tokyo's Haneda airport - the only slots belonging to a budget carrier not linked to the country's two big airlines.

Mr Nagamine at ANA said Skymark's independence and corporate culture would be protected through the turnround process. But analysts have long said that Skymark should not have any financial ties to the two big established players to ensure healthy competition in the Japanese market.

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