Japan's ANA to acquire 20% stake in rival Skymark Airlines

Japan's biggest airline All Nippon Airways (ANA) has agreed to buy a 19.9-per cent stake in struggling domestic low-cost carrier Skymark Airlines Inc, aiming to strengthen its lead over rival Japan Airlines Co.

Under the deal, Japanese private equity fund Integral Corp will acquire a 50.1-per cent interest in Skymark, while other investors including the Development Bank of Japan and Sumitomo Mitsui Banking Corp are also expected to take part as co-sponsors.

Skymark will get a capital injection of around 18 billion ($149 million). A bridge loan from Integral will be converted into equity and Skymark will subsequently issue new shares which are expected to be relisted within five years.

By acquiring the stake, ANA will add Skymark's 36 landing slots at Tokyo's Haneda airport, the country's main domestic hub and the world's fourth-busiest airport.  Currently, ANA, along with its subsidiaries, already controls over half of the 486 landing slots at Haneda while rival JAL has about 180. 

Citing sources, Reuters reported that ANA's stake has been kept below 20 per cent so that it will not be forced by Japanese regulators to surrender some of its landing rights at Haneda airport.

Earlier in February, Integral signed a supporting and credit deal with Skymark, which entered bankruptcy in January following its inability to pay its debt.

Integral had said it would assist Skymark by providing finances, business administration and formulating a rehabilitation plan for the turnaround of the struggling airline with the involvement of co-sponsors.

Integral and ANA plan to retain Skymark's employees which are over 2,100.

Further to the deal, Japan will no longer have a major independent budget airline, and the domestic air travel market will return to legacy carriers that has dominated the skies for decades.

Upon obtaining approval for the revival plan from the Tokyo court and creditors, Skymark's chairman and president will step down and a new chairman will be appointed by Integral and a chairman by ANA.

Tokyo-based Skymark, founded in 1996, is the third-largest airline in Japan, annually serving over 6.7million passengers. The airline operates a fleet of 27 aircraft flying on 21 routes.

An ambitious growth plan coupled with attempts to undercut rivals ANA and JAL on fares weakened the company's financial position. Skymark had ordered Airbus A380 superjumbos intending to fly them in international routes. However the plan was to be aborted due to stiff competition from rivals.

Unable to fulfill its financial commitments to Airbus due to the weakening of the Japanese yen and fall in revenue, Skymark opted for bankruptcy in January 2014 reporting 71 billion in liabilities.

Major airlines including Air Asia, Delta Airlines, and American Airlines had also shown interest in as co-sponsors early in Skymark's bankruptcy proceedings, with ANA a perceived as the front-runner.