Air Asia denies interest in purchasing Skymark Airlines

Jose Castro – Fourth Estate Cooperative Contributor

Tokyo, Japan (4E) – In a rare denial, Malaysia’s Air Asia Bhd said it was not putting together a bid for floundering Japanese air carrier Skymark Airlines Inc. Instead, the company confirmed that it was in the process of working with Japanese partners in establishing a budget airline.

According to a report from the Nikkei business daily, AirAsia was in talks with financial institutions for a tender to be made for the low cost carrier. AirAsia, acknowledged as one of the region’s most aggressive budget air carrier, despite being an unconfirmed report, caused shares of Skymark to surge by 28%.

For its part, Skymark had said it was uncertain if it could remain open for business especially after the company was slapped with penalties by Airbus for failing to complete the order for six A380 superjumbo airlines. Skymark said it was unable to get the proper financing for the deal as Airbus was claiming ‘an extraordinary amount of compensation.’

According to Air Asia CEO Tony Fernandes, “Never seen so much rubbish. Air Asia has no interest in Skymark in Japan. There have been no discussions with Skymark.”

The rumor may have been precipitated by AirAsia choosing online commerce firm Rakuten Inc as a partner for its second foray into the Japanese aviation market. Their first try was with ANA Holdings Inc in 2013. What makes Skymark attractive is it’s 36 slots in Tokyo’s busy Haneda Airport. The rumor came about when AirAsia, a known customer of Airbus,had approached it to leverage the reduction of the cancellation penalties imposed.

Amongst the major issues with Skymark is its net loss of JPY5.8 billion or USD57 million. The weakening yen, together with the dollar denominated fuel price, the airline is bleeding losses. Skymark is now reviewing as to decrease its routes by cancelling unprofitable ones as well as seeking further financing for operational costs of the airline.

For its part, Skymark issued a statement saying, “We’re not aware that there is any truth in what has been reported.”

Skymark came to fore as one of the first firms created when the Japanese air market was deregulated in the 1990s. The purpose of the creation of Skymark was to challenge ANA and Japan Airlines monopoly over the market. The entry of other budget airlines into the Japanese market had hurt its bottom line, resulting in ballooning losses for Skymark. As of March 2014, the third largest carrier in Japan had losses amounting to JPY1.8 billion or USD17.5 million. In 2013, the company turned a profit of JPY3.8 billion.

As for Skymark’s issue with Boeing, as the former had cancelled its order of siz A380 jumbo jets, it balked at what it termed as ‘overpriced’ penalties. Skymark also scoffed at Airbus’s recommendation that the Japanese firm merge with a larger airline.

The said planned purchase of the large sized passenger jets was out of the league for a small company servicing only domestic routes, with a net valuation of USD2.3 billion in 2011. While there were plans to start overseas routes to complement its local routes.

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