Delta Finds a Bankrupt Skymark to be Its Great Japanese Hope

Delta

It’s no secret that Delta isn’t happy with its situation in Japan. It wants a close partner over there, and it’s the only one of the big 3 US carriers that doesn’t have one. Now it thinks it’s found its opening with an unlikely airline… the bankrupt and directionless Skymark.

Delta Stables

If you were to look up the word Icarus in the airline dictionary, it would have a picture of a Skymark A380 next to it. Skymark started in the late 1990s as the scrappy upstart to challenge the dominance of Japan Airlines and ANA. It wiggled its way into the coveted Haneda Airport in Tokyo, but that didn’t prevent the airline from losing money. By the mid-2000s, however, it had found its stride and started making money flying passengers around Japan with low fares.

That success was short-lived as Skymark got cocky. Really cocky. In 2010, it decided to order A380s. Why? Because… crazy. That’s why. Skymark was going to go upmarket and fly these to Europe. The airline also ordered A330s to fly in a premium configuration around Japan. These were bad ideas in their own right, but once the Japanese Yen weakened, it made things even worse. The A330s showed up but were a failure. The A380s never made it on the property, but Skymark had millions of dollars in penalties to show for it. Earlier this year, Skymark went bankrupt.

Skymark now has a couple dozen 737-800s flying around Japan and that’s it. In bankruptcy, the original plan crafted by Skymark was to partner with ANA. The two big creditors, Airbus and Intrepid Aviation (aircraft lessor), hated that idea so it was dead on arrival. On July 15, Intrepid announced that it was partnering with Delta to bring this airline out of bankruptcy.

So why the heck would Delta want to bother with this? Of course, for Delta, this is about the long game. And Skymark has 36 things that Delta really wants. That’s 36 takeoff and landing slot pairs per day at Haneda, the largest number of slots behind Japan Airlines and ANA.

You might be wondering why Delta would care about having 36 slot pairs at Haneda. After all, it just gave up a slot pair on the Seattle-Haneda route because that was performing so terribly. But again, this is about the long game.

Delta has repeatedly said that it understands Haneda is the most preferred airport in Tokyo, and it wants to move its entire hub there. There are all kinds of problems with that. First, Haneda doesn’t have the capacity for that. Second, there just doesn’t seem to be an appetite in Japan for this to be allowed. From what I can tell, unless Delta can get its whole operation in Haneda, it doesn’t think that Haneda should be opened up further at all for travel to the US.

With little capacity available, Delta’s best option to get its foot in the door is to partner. If this sounds like what Delta did with Virgin Atlantic to get beyond its paltry presence at Heathrow, that’s because it’s a similar idea. The problem is there aren’t any big dance partners left in Tokyo. American has Japan Airlines locked up. United has ANA. But Delta has nothing but its own legacy hub at Narita. You can see where this goes. Delta takes a stake in Skymark as it has in many before. Then it can guide Skymark to do its bidding.

With further liberalization, presumably Delta would be able to get Skymark to fly beyond Haneda to places Delta has to fly its own metal today. Then Delta could focus on flying its aircraft between the US and Haneda. This is all a ways off, but Delta wants to lay the groundwork.

Certainly Delta is no stranger to airline investments. There’s Gol, Aeromexico, and Virgin Atlantic. So for a little bit of cash, Delta can pick up its only real chance at finding a partner in Japan. All the Skymark insanity is gone. The A380s are forgotten, and any outstanding dispute will be resolved before the airline comes out of bankruptcy. And those A330s? You think Intrepid might find Delta interested in picking those up as part of this? Wouldn’t surprise me. After all, Intrepid picked Delta in this process.

This would certainly be the weakest airline Delta has invested in, but I just assume Delta isn’t investing in the airline. It would be investing in a platform to roll out is plans for Japanese domination. It wants a better footing in the country, and this is a way to take a step toward that goal.

[Original stable photo via Shutterstock]

Get Posts via Email When They Go Live or in a Weekly Digest

18 comments on “Delta Finds a Bankrupt Skymark to be Its Great Japanese Hope

  1. Interesting article, and of course, in the UK, bankrupt means something different!

    If it is about getting a foothold in the Japanese market, hopefully Skymark’s management will have a better understanding of that than before!

  2. There is a touch of irony that this whole buy-equity-in-a-struggling-airline that Delta is doing here is something… a Middle East carrier would do. *ehem* Etihad *ehem*

  3. Interesting play here but have to admit Delta’s management seemingly has more wins than losses on their record. Of course it can’t last forever but if I were a betting man, i.e. being foolish enough to own stock in airlines, I’d buy Delta on this hail mary’s turning positive.

  4. As indicated above, Delta does have more hits than misses. Operationally, it is a fantastic airline but the disdain shown toward their loyal customers is incredible as evidenced by the continued devaluation in SkyPesos. What will a r/t flight to Haneda take? 100,000 pesos? 150k? 200k? Who knows – no chart to review!

  5. Did I read the if DL can’t have its way at Haneda then no one should? What’s big babies they are.

    I thought the ‘darling’ of Asia was China, wasn’t Japan the ‘darling’ place in the last century? A few 737’s isn’t going to complete with UA/NH or AA/JL, this must really be a long term goal.

    1. David SF – That’s right. If Delta can’t get access then it doesn’t want to see others either. And as for Japan, it may not be growing like China but it’s still a very important market. That being said, Delta is spending a ton of time in China too and has gotten closer with China Eastern and China Southern.

      1. Just a couple days ago, i read an article that Delta plunked down $450 million for 15 percent of china eastern…please correct me if i’m wrong.

        1. Delta1 – You’re correct. That happened after this post came out, and I’m definitely looking into that one pretty closely.

    1. Nick – I’d think so. If these artificial borders didn’t exist, we’d see a whole lot more mergers in general, as we do in other industries.

  6. While in Japan last week I was reading about this development, and at least over there it appears that this would happen ‘over ANA’s dead body’ – in other words, there’s no way they will go for this as there is already talks underway for ANA to take over.
    If bankruptcy works anything like it does over here I don’t think it would matter that ANA had ‘first dibs’ on Skymark. Look at AA’s bankruptcy – they had no interest at all tying up with US but when all was said and done it appeared to be the best offer on the table for many of the interests involved (in my opinion, NOT the flying public though!).

    1. Bankruptcy in Japan is very different than in the US. That is why the Japanese economy still has a hangover from the 1997 Asian market collapse. I’m no expert on Japanese bankruptcy law, but from what I understand, it is very difficult to write off losses. Something about honoring ones debts no matter how long it takes to pay them, rather than discharging them in court. There is also the concept of doing what’s good for the group rather than what is good for the individual or a single organization.

      It will be interesting to see how Skymark’s bankruptcy proceedings unfold.

  7. This morning’s Nikkei indicates that Delta is ahead in the upcoming creditor vote, as two major creditors (Rolls-Royce and CIT) are preparing to split their votes in order to maintain relations with both ANA and Delta, which would give Delta a slight majority together with Intrepid’s large share of the debt. My hunch is that Airbus will also vote for Delta, as it has a very weak relationship with ANA.

  8. I would also add one more fatal mistake to the story of Skymark’s demise: no currency hedging. One of the big flaws in their business model was that their costs were mainly in dollars (jet fuel and aircraft purchase/leasing costs) while their revenue was 100% in yen. When they ordered all those Airbuses, the yen was trading at 80 to the dollar; when they filed for bankruptcy the yen was down to 120 to the dollar. Skymark’s pre-bankruptcy CEO, who had previously been an internet startup founder, didn’t see the value of hedging and thought that it was just a way for banks to make money. Oops.

  9. Delta also has an equity stake in Virgin Australia — theirs is smaller than those of the other three airlines that have equity stakes in Virgin Australia, but nonetheless, all part of the same strategy.

    1. Bgriff – You sure about that? I don’t remember Delta taking any equity stake in Virgin Australia. They have a joint venture, but I don’t think there’s equity.

      1. DL indeed has no equity stake in VA. NZ, SQ, and EY all do have equity stakes in VA, but DL just has the joint venture.

        (Apropos of nothing, Virgin Group owns some of VA too, but VS does not; VS and VA have a limited, non-joint-venture partnership and in fact no longer even have any overlap in airports served.)

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Do NOT follow this link or you will be banned from the site!